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Trade openness and public expenditure on labor market policies

Author

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  • Elisa BORGHI

Abstract

This article investigates the effect of trade openness on public expenditure on labor market policies, both passive and active, using a panel of 20 OECD countries in the period 1980-2003. Trade openness and, more in general, globalization, can increase job insecurity and inequality, and therefore governments?expenditure can increase in order to offer compensation or insurance (compensation hypothesis). On the other hand, the increased competitiveness in the global arena constraints the ability of expanding public expenditure both because of efficiency reasons and tax competition effects (efficiency assumption). This study shows that both channels play a role in shaping public expenditure on passive and active labor market policies and that different aspects of globalization have a different impact.

Suggested Citation

  • Elisa BORGHI, 2010. "Trade openness and public expenditure on labor market policies," Departmental Working Papers 2010-021, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2010-021
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    More about this item

    Keywords

    Social expenditure; Labor market policies; Trade openness;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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