IDEAS home Printed from https://ideas.repec.org/p/gpe/wpaper/14053.html
   My bibliography  Save this paper

The effect of globalization on the distribution of taxes and social expenditures in Europe: Do welfare state regimes matter?

Author

Listed:
  • Onaran, Özlem
  • Boesch, Valerie

Abstract

This paper estimates the effect of globalization on the implicit tax rates (ITR) on capital income, labor income and consumption, and the share of social protection expenditures in total public expenditures in Western and Eastern Europe. It tests the coexistence of efficiency and compensation effects of globalization on the expenditure and the revenue sides of government budgets. In Western Europe, globalization leads to an increase in social expenditures; however these expenditures are to an increasing extent financed by taxes on labor. There are important differences between the welfare states. In the conservative regimes, both social expenditures and taxes on labor increase due to globalization. In the social-democratic regimes social expenditures are not affected by globalization, but ITR on labor increases, whereas ITR on capital and consumption decrease as a result of globalization. In the liberal regimes, the ITR on labor is rising, while social expenditures are declining. In the southern welfare regime globalization does not have any significant effects on the distribution of taxes or social spending. In Eastern Europe, in the Baltic States globalization leads to a decrease in social spending, whereas in the other Eastern European New Member States (post-communist European regimes) there is an upward convergence in social spending due to globalization. The ITR on consumption decrease due to globalization in the post-communist European regimes, whereas in the Baltics there is no robust significant effect of globalization on taxes.

Suggested Citation

  • Onaran, Özlem & Boesch, Valerie, 2013. "The effect of globalization on the distribution of taxes and social expenditures in Europe: Do welfare state regimes matter?," Greenwich Papers in Political Economy 14053, University of Greenwich, Greenwich Political Economy Research Centre.
  • Handle: RePEc:gpe:wpaper:14053
    as

    Download full text from publisher

    File URL: http://gala.gre.ac.uk/id/eprint/14053/1/GPERC02_Onaran_BoeschF.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:cup:apsrev:v:98:y:2004:i:02:p:243-260_00 is not listed on IDEAS
    2. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    3. Ronald B. Davies & Johannes Voget, 2008. "Tax competition in an expanding European Union," Working Papers 200904, School of Economics, University College Dublin.
    4. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    5. Peter Schwarz, 2007. "Does capital mobility reduce the corporate-labor tax ratio?," Public Choice, Springer, vol. 130(3), pages 363-380, March.
    6. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    7. Hannes Winner, 2005. "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(5), pages 667-687, September.
    8. Axel Dreher & Jan-Egbert Sturm & Heinrich Ursprung, 2008. "The impact of globalization on the composition of government expenditures: Evidence from panel data," Public Choice, Springer, vol. 134(3), pages 263-292, March.
    9. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
    10. Bruno, Giovanni S.F., 2005. "Approximating the bias of the LSDV estimator for dynamic unbalanced panel data models," Economics Letters, Elsevier, vol. 87(3), pages 361-366, June.
    11. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    12. Dreher, Axel, 2006. "The influence of globalization on taxes and social policy: An empirical analysis for OECD countries," European Journal of Political Economy, Elsevier, vol. 22(1), pages 179-201, March.
    13. European Commission, 2000. "Structures of the taxation systems in the European Union : 2000 edition," Taxation trends 2000, Directorate General Taxation and Customs Union, European Commission.
    14. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
    15. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November.
    16. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    17. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
    18. Markus Leibrecht & Michael Klien & Oezlem Onaran, 2011. "Globalization, welfare regimes and social protection expenditures in Western and Eastern European countries," Public Choice, Springer, vol. 148(3), pages 569-594, September.
    19. Stephanie Meinhard & Niklas Potrafke, 2012. "The Globalization–Welfare State Nexus Reconsidered," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 271-287, May.
    20. Bretschger, Lucas, 2010. "Taxes, mobile capital, and economic dynamics in a globalizing world," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 594-605, June.
    21. Swank, Duane, 2006. "Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism," International Organization, Cambridge University Press, vol. 60(4), pages 847-882, October.
    22. Michael P. Devereux & Rachel Griffith, 1998. "The Taxation of Discrete Investment Choices," Keele Department of Economics Discussion Papers (1995-2001) 98/08, Department of Economics, Keele University.
    23. Signe Krogstrup, 2003. "A Synthesis of Recent Developments in the Theory of Capital Tax Competition," EPRU Working Paper Series 04-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    24. Esping-Andersen, Gosta, 1999. "Social Foundations of Postindustrial Economies," OUP Catalogue, Oxford University Press, number 9780198742005.
    25. Christian Bellak & Markus Leibrecht, 2009. "Do low corporate income tax rates attract FDI? - Evidence from Central- and East European countries," Applied Economics, Taylor & Francis Journals, vol. 41(21), pages 2691-2703.
    26. European Commission, 1998. "Structures of the taxation systems in the European Union 1970-1996," Taxation trends 1998, Directorate General Taxation and Customs Union, European Commission.
    27. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    28. 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.
    29. Anne-Marie Brook & Willi Leibfritz, 2005. "Slovakia's Introduction of a Flat Tax as Part of Wider Economic Reforms," OECD Economics Department Working Papers 448, OECD Publishing.
    30. Peter Havlik, 2005. "Structural Change, Productivity and Employment in the New EU Member States," wiiw Research Reports 313, The Vienna Institute for International Economic Studies, wiiw.
    31. Gemmell, Norman & Kneller, Richard & Sanz, Ismael, 2008. "Foreign investment, international trade and the size and structure of public expenditures," European Journal of Political Economy, Elsevier, vol. 24(1), pages 151-171, March.
    32. Antonis Adam & Pantelis Kammas, 2007. "Tax policies in a globalized world: Is it politics after all?," Public Choice, Springer, vol. 133(3), pages 321-341, December.
    33. European Commission, 2008. "Taxation trends in the European Union: 2008 edition," Taxation trends 2008, Directorate General Taxation and Customs Union, European Commission.
    34. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
    35. Sanz, Ismael & Velazquez, Francisco J., 2007. "The role of ageing in the growth of government and social welfare spending in the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 917-931, December.
    36. European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
    37. Robert R. Kaufman & Alex Segura-Ubiergo, 2005. "Globalization, Domestic Politics and Social Spending in Latin," Public Economics 0504009, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jha, Priyaranjan & Gozgor, Giray, 2019. "Globalization and taxation: Theory and evidence," European Journal of Political Economy, Elsevier, vol. 59(C), pages 296-315.
    2. Niklas Potrafke, 2018. "The Globalisation-Welfare State Nexus: Evidence from Asia," CESifo Working Paper Series 7330, CESifo Group Munich.
    3. Niklas Potrafke, 2019. "The globalisation–welfare state nexus: Evidence from Asia," The World Economy, Wiley Blackwell, vol. 42(3), pages 959-974, March.
    4. Onaran, Özlem & Guschanski, Alexander, 2016. "The political economy of income distribution: industry level evidence from Austria," Greenwich Papers in Political Economy 15865, University of Greenwich, Greenwich Political Economy Research Centre.
    5. Özlem Onaran, 2016. "Secular stagnation and progressive economic policy alternatives," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(2), pages 229-240, September.
    6. Orsetta Causa & Anna Vindics & Oguzhan Akgun, 2018. "An empirical investigation on the drivers of income redistribution across OECD countries," OECD Economics Department Working Papers 1488, OECD Publishing.
    7. repec:ces:ifofor:v:19:y:2018:i:2:p:44-54 is not listed on IDEAS

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gpe:wpaper:14053. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nadine Edwards). General contact details of provider: http://edirc.repec.org/data/pegreuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.