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State Capacity and the Quality of Policies: Revisiting the Relationship between Openness and the Size of Government

Author

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  • Franco, Maria
  • Scartascini, Carlos
  • Tommasi, Mariano

Abstract

The literature has identified that countries with higher levels of openness tend to present a larger government sector as a way to reduce the risks to the economy that openness entails. This paper argues that there are a number of policies that can mitigate trade-induced risks, many of which do not have the necessary implication of increasing public spending. Yet, many such policies require governmental capabilities not available to any country. For that reason, the relationship between openness and the size of government might be mediated by the quality of its public sector. While countries with weak government capabilities will tend to rely on spending expansions to deal with trade-induced volatility, countries with stronger governmental capabilities might address such challenges by more efficient and less costly means. The empirical analysis in this paper shows that the effect of openness on government consumption is mediated by the quality of government institutions.

Suggested Citation

  • Franco, Maria & Scartascini, Carlos & Tommasi, Mariano, 2014. "State Capacity and the Quality of Policies: Revisiting the Relationship between Openness and the Size of Government," IDB Publications (Working Papers) 6603, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:6603
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    Cited by:

    1. Hallerberg, Mark & Scartascini, Carlos, 2017. "Explaining changes in tax burdens in Latin America: Do politics trump economics?," European Journal of Political Economy, Elsevier, vol. 48(C), pages 162-179.
    2. Cruz, Cesi & Keefer, Philip, 2015. "Political Parties, Clientelism, and Bureaucratic Reform," IDB Publications (Working Papers) 6968, Inter-American Development Bank.
    3. Mariano Tommasi & Germán Caruso & Carlos Scartascini, 2014. "Are We Playing the Same Game? The Economic Effects of Constitutions Depend on the Degree of Institutionalization," Working Papers 116, Universidad de San Andres, Departamento de Economia, revised Dec 2014.

    More about this item

    Keywords

    Openness; Quality of policies; Government capabilities; Government size;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F19 - International Economics - - Trade - - - Other
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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