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Trade openness, capital openness and government size

  • Liberati, Paolo

This paper provides empirical evidence of the relation between trade openness, capital openness and government expenditures in a cross sectional time-series context. It is shown that capital openness is significantly and negatively related to government expenditures in line with the conventional wisdom that capital mobility may undermine the ability of governments to maintain larger public sectors. More importantly, the compensation hypothesis originally proposed by Rodrik (1998) and traceable back to Cameron (1978) is not in general supported by the data.

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File URL: https://mpra.ub.uni-muenchen.de/44371/1/MPRA_paper_44371.pdf
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File URL: https://mpra.ub.uni-muenchen.de/44569/1/MPRA_paper_44569.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44371.

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Date of creation: 2007
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Publication status: Published in Journal of Public Policy 27.2(2007): pp. 215-247
Handle: RePEc:pra:mprapa:44371
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Web page: https://mpra.ub.uni-muenchen.de

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  1. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  2. 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.
  3. Axel Dreher, 2003. "The Influence of globalization on taxes and social policy - an empirical enalysis for OECD countries," Discussion Papers 0301, Exeter University, Department of Economics.
  4. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  5. Duane Swank, 1998. "Funding the Welfare State: Globalization and the Taxation of Business in Advanced Market Economies," Political Studies, Political Studies Association, vol. 46(4), pages 671-692, 09.
  6. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  7. Hassan Molana & Catia Montagna & Mara Violato, 2004. "On the Causal Relationship between Trade Openness and Government Size: Evidence from 23 OECD Countries," Dundee Discussion Papers in Economics 164, Economic Studies, University of Dundee.
  8. Aizenman, Joshua & Jinjarak, Yothin, 2006. "Globalization and Developing Countries - a Shrinking Tax Base ?," Santa Cruz Department of Economics, Working Paper Series qt8r12k4xr, Department of Economics, UC Santa Cruz.
  9. Ruggie, John Gerard, 1982. "International regimes, transactions, and change: embedded liberalism in the postwar economic order," International Organization, Cambridge University Press, vol. 36(02), pages 379-415, March.
  10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  11. Ajit Singh, 2002. "Capital account liberalization, free long-term capital flows, financial crises and economic development," ESRC Centre for Business Research - Working Papers wp245, ESRC Centre for Business Research.
  12. Benjamin I. Page, . "Trouble for Workers and the Poor: Economic Globalization and the Reshaping of American Politics," IPR working papers 97-6, Institute for Policy Resarch at Northwestern University.
  13. Benjamin I. Page, 1997. "Trouble for Workers and the Poor: Economic Globalization and the Reshaping of American Politics," JCPR Working Papers 5, Northwestern University/University of Chicago Joint Center for Poverty Research.
  14. Akai, Nobuo & Sakata, Masayo, 2002. "Fiscal decentralization contributes to economic growth: evidence from state-level cross-section data for the United States," Journal of Urban Economics, Elsevier, vol. 52(1), pages 93-108, July.
  15. Muhammad Islam, 2004. "The long run relationship between openness and government size: evidence from bounds test," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 995-1000.
  16. Slemrod, Joel, 2004. "Are corporate tax rates, or countries, converging?," Journal of Public Economics, Elsevier, vol. 88(6), pages 1169-1186, June.
  17. Garen, John & Trask, Kathleen, 2005. "Do more open economies have bigger governments? Another look," Journal of Development Economics, Elsevier, vol. 77(2), pages 533-551, August.
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