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The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

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Listed:
  • Axel Dreher
  • Jan-Egbert Sturm
  • Heinrich Ursprung

Abstract

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced by citizens’ preferences to be compensated for the risks of globalization (“compensation hypothesis”). Employing two different datasets and various measures of globalization, we analyze whether globalization has indeed influenced the composition of government expenditures. For a sample of 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: capital expenditures; expenditures for goods and services; interest payments; and subsidies and other current transfers. A second dataset provides a much more detailed classification: public expenditures, expenditures for defence, order, economic environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 – and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.

Suggested Citation

  • Axel Dreher & Jan-Egbert Sturm & Heinrich Ursprung, 2006. "The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data," CESifo Working Paper Series 1755, CESifo.
  • Handle: RePEc:ces:ceswps:_1755
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    References listed on IDEAS

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    1. Garrett, Geoffrey, 1998. "Global Markets and National Politics: Collision Course or Virtuous Circle?," International Organization, Cambridge University Press, vol. 52(4), pages 787-824, October.
    2. Günther G. Schulze & Heinrich W. Ursprung, 1999. "Globalisation of the Economy and the Nation State," The World Economy, Wiley Blackwell, vol. 22(3), pages 295-352, May.
    3. Garrett, Geoffrey, 1995. "Capital mobility, trade, and the domestic politics of economic policy," International Organization, Cambridge University Press, vol. 49(4), pages 657-687, October.
    4. Glick, Reuven & Hutchison, Michael, 2005. "Capital controls and exchange rate instability in developing economies," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 387-412, April.
    5. Matthias Busse, 2004. "Transnational Corporations and Repression of Political Rights and Civil Liberties: An Empirical Analysis," Kyklos, Wiley Blackwell, vol. 57(1), pages 45-65, February.
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    Cited by:

    1. Nasim Masoudi & Nazar Dahmarde & Marziye Esfandiyari, 2017. "Exploring the Relationship between Globalization and Economic Growth in Selected Countries of Middle East," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 338-344.
    2. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," World Bank Economic Review, World Bank Group, vol. 22(2), pages 291-314, April.
    3. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
    4. Niklas Potrafke, 2009. "Did globalization restrict partisan politics? An empirical evaluation of social expenditures in a panel of OECD countries," Public Choice, Springer, vol. 140(1), pages 105-124, July.
    5. Estache, A. & Gonzalez, M. & Trujillo, L., 2007. "Government expenditure on education, health and infrastructure: a naive look at levels, outcomes and efficiency," Working Papers 07/03, Department of Economics, City University London.
    6. Paulo Reis Mourao, 2007. "Has Trade Openness Increased all Portuguese Public Expenditures? A Detailed Time-Series Study," Financial Theory and Practice, Institute of Public Finance, vol. 31(3), pages 225-247.
    7. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    8. Nicolas Van de Sijpe, 2013. "Is Foreign Aid Fungible? Evidence from the Education and Health Sectors," World Bank Economic Review, World Bank Group, vol. 27(2), pages 320-356.

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    More about this item

    Keywords

    globalization; economic policy; government expenditure composition; tax competition;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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