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Trade openness and public expenditure on labor market policies

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  • Elisa BORGHI

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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 2010-21, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2010-21
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    File URL: http://wp.demm.unimi.it/files/wp/2010/DEMM-2010_021wp.pdf
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    References listed on IDEAS

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    1. Shelton, Cameron A., 2007. "The size and composition of government expenditure," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2230-2260, December.
    2. 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.
    3. repec:cup:apsrev:v:72:y:1978:i:04:p:1243-1261_15 is not listed on IDEAS
    4. 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.
    5. Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
    6. Rafael Lalive & JanC. vanOurs & Josef Zweimüller, 2008. "The Impact of Active Labour Market Programmes on The Duration of Unemployment in Switzerland," Economic Journal, Royal Economic Society, vol. 118(525), pages 235-257, January.
    7. Noel Gaston & Gulasekaran Rajaguru, 2004. "The Rise (and Fall) of Labour Market Programmes: The Role of Global and Domestic Factors," ISER Discussion Paper 0615, Institute of Social and Economic Research, Osaka University.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Agnese Sacchi & Simone Salotti, 2016. "A Comprehensive Analysis of Expenditure Decentralization and of the Composition of Local Public Spending," Regional Studies, Taylor & Francis Journals, vol. 50(1), pages 93-109, January.

    More about this item

    Keywords

    Social expenditure; Labor market policies; Trade openness;

    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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