Globalization,government spending and taxation in the OECD

Abstract. This article assesses the impact of globalization on welfare state effort in the OECD countries. Globalization is defined in terms of total trade, imports from low wage economies, foreign direct investment, and financial market integration. Welfare effort is analyzed in terms both of public spending (and separately on social service provision and income transfer programs) and taxation (effective rates of capital taxation and the ratio of capital to labor and consumption taxes). Year–to–year increases in total trade and international financial openness in the past three decades have been associated with less government spending. In contrast, integration into global markets has not been associated either with reductions in capital tax rates, or with shifts in the burden of taxation from capital to consumption and labor income. Moreover, countries with greater inflows and outflows of foreign direct investment tend to tax capital more heavily.     

From myth to reality: Globalisation and public spending in OECD countries revisited

The prevailing but not unchallenged 'conventional wisdom' in the literature dealing with the impact of globalisation on public spending is that the effects of increased openness can be compensated through the welfare state. Repeatedly, studies have found little evidence for a 'race to the bottom' in taxation or spending. This research note shows that it is premature to conclude that globalisation has no negative impact on public spending. By extending the period of observation into the 2000s, by looking at changes in openness and spending instead of their levels, and by disentangling the effects of openness in the cross-sectional and over-time dimensions of variation, this article shows that the association between increased openness and spending is clearly negative. Although the contribution of this research note is mainly empirical, some theoretical arguments are presented, emphasising the long-term nature and complexity of policy making in the politics of globalisation.     

The effect of trade openness on economic growth: Some empirical evidence from emerging market economies

This study investigates the impact of trade openness on economic growth in a panel of five emerging market economies, covering the data period from 1993 to 2016. Based on the panel estimation methods, the empirical results confirm the long‐run relationship among trade openness, economic growth, financial development, inflation, labour force, and technology, whereas the findings of long‐run elasticities show that trade openness has a positive considerable impact on economic growth. Furthermore, the heterogeneous panel non‐causality tests indicate the presence of a bidirectional causality between economic growth and inflation and a unidirectional causality that runs from economic growth to trade openness and economic growth to financial development in the short run. Finally, the findings suggested that trade openness plays a substantial role in promoting economic growth while also promoting economic development in these five emerging market economies.     

An Indian story on carbon emission,energy consumption,trade openness,and financial development

This paper empirically studies the impact of energy consumption, financial development, and trade openness on India's carbon emission for 1971 to 2014 and validates the environmental Kuznets curve hypothesis for India. The Autoregressive Distributed‐lagged model (ARDL) bound test is used to test the existence of cointegration among the key variables. The results exhibit a U‐shaped relationship between carbon emission and energy consumption in the long run. Through this study, we find out the maximum threshold value of energy consumption per capita to 757 kg of oil equivalent, which is above the current consumptions levels—indicating a rise in carbon emission shortly. Further, the long‐run results show that a 1% increase in trade openness will decrease carbon emission by 0.11%, which is a display of technological effect over scale effect and composition effect. Financial development does not exhibit a significant relation to carbon emission. The results are in line with the literature on climate change in emerging countries. This empirical work gives some insight into policy issues that have to be looked into further.     

Does social capital increase public support for economic globalisation?

The dominant explanation of public attitudes vis‐à‐vis economic globalisation focuses on re‐distributional implications, with an emphasis on factor endowments and government‐sponsored safety nets (the compensation hypothesis). The empirical implication of these theoretical arguments is that in advanced economies, on which this article focuses, individuals endowed with less human and financial capital will be more likely to experience income losses. Hence they will oppose economic openness unless they are compensated by the government. It is argued here that including social capital in the analysis can fill two gaps in explanations relying on factor endowments and the compensation hypothesis. First, generalised trust – one key aspect of social capital – constitutes a personal endowment alongside human and financial capital. Second, structural social capital – another key aspect of social capital – can be regarded as a nongovernmental social safety net that can compensate for endowment‐related disadvantages of individuals. Both aspects of social capital are expected to contribute, for distinct reasons, to more positive views on economic openness. The empirical testing relies on survey data for two countries: Switzerland and the United States. For both countries, the results indicate that generalised trust has a strong, positive effect on public opinion of economic globalisation, whereas structural social capital has no effect.     

Der Kampf um knappe Mittel: Die Bestimmungsfaktoren der öffentlichen, privaten und sektoralen Bildungsausgaben im OECD-Länder-Vergleich

This article identifies the statistical determinants of public, private, and sectoral education spending in 21 OECD countries in the time period from 1980 to 2002. It is shown that socio-economic variables like the economic well-being of a country and the size of the youth population are important factors driving spending. In addition, political and institutional factors like the partisan composition of the government or the number of veto points play a major role as well. Private spending can in part substitute for a lack of public spending. The analysis of public spending on higher education shows that countries with left governments and a high openness of trade exhibit higher levels of spending, probably to compensate for negative externalities of internationalization.     

Rights,review, and spending: Policy outcomes with judicially enforceable rights

Abstract. This paper posits that countries with a constitutional right to social security that can be enforced by courts via judicial review will show patterns of spending on social security that are distinct from countries with other constitutional and judicial arrangements. Governments in countries with enforceable rights will be constrained to spend more on transfer programs to avoid censure from the courts. The hypotheses are tested using data from 22 OECD countries using time–series cross–section analysis. The results show that enforceable rights are associated with higher growth rates in social security spending and lower fluctuation in expenditures on social programs, although the amount of GDP spent on social transfers is unaffected by rights. These results are consistent with the idea that governments' spending habits are constrained by positive rights, but rebut the argument that rights lead to economic distortions.     

Issue compensation and right‐wing government social spending

It is well‐established that prolonged left‐wing incumbency has a positive long‐term effect on welfare effort in terms of high levels of social spending and reduced levels of economic inequality and poverty. Prolonged left‐wing incumbency also influences the institutional set‐up of welfare states, in particular generating strong support for existing arrangements in countries with large welfare states. The issue ownership literature furthermore shows that the public comes to distrust right‐wing parties as defenders of the welfare state. In countries that have a tradition of left‐wing incumbency it is particularly important for right‐wing governments to compensate for the distrust of the public because of the popularity of the welfare state and strong vested interests. While right‐wing governments on average are negatively associated with social spending, there is a strong positive association between right‐wing government and social spending in traditionally left‐wing countries. It is even the case that right‐wing governments in these countries spend more on social welfare than left‐wing governments. This indicates that right‐wing governments are forced to compensate for the lack of public trust by being even more generous than the left.     

Party competition and the politics of economic openness and growth

Abstract. The political effects of economic openness have recently attracted considerable scholarly attention. This paper analyzes the relationships between openness of trade, party competition, and economic performance in 15 advanced Western democracies. Restraints on party competition are found to depend more on domestic social pluralism than on openness of trade. Economic growth is promoted both by economic exposure and by party-system competition. The results suggest that restraints on political competition may be less beneficial in party systems than in interest group systems.     

Distribution of income in advanced capitalist states: political parties, labour unions, and the international economy

Abstract. Hypotheses about determinants of income inequality in advanced capitalist societies are tested with data from the World Bank for 1975–80 across virtually the complete population. The results support most of the propositions of a model that takes into account differences in partisan control of government, the organization strength of labour, and the openness of the economy to international market forces. Hypotheses derived from global models of income distribution are not supported. The major findings are (1) that labour organization has no direct effect on income inequality; (2) that strong socialist parties have a negative effect on the size of the gap between the rich and the poor but no effect on the gap between the rich and the middle class; (3) that the governmental strength of conservative parties is unrelated to the size of the gap between the rich and the poor but has a very strong positive effect on the gap between the rich and the middle class; and (4) that, regardless of partisan control of government, relatively small trade dependent economies are more egalitarian than relatively large economies which are less dependent on international trade.     

Electoral Competition, Globalization, and Subnational Education Spending in Mexico, 1999–2004

This article examines the determinants of primary education spending among 29 Mexican states from 1999 to 2004. There is wide variation in spending despite expectations of policy convergence due to market forces associated with globalization, and in spite of the unique potential of education spending to complement economic strategies in achieving equitable growth. This study exploits significant advantages of subnational analysis in exploring political and economic variables that have been useful in explaining spending levels cross-nationally. Consistent with these studies, this article shows that greater electoral competition leads to increased spending. In contrast to other work, however, this study finds that exposure to the global economy has distinctly mixed effects on education spending. These findings thus further highlight the positive returns to higher "quality" democracy, while underscoring the need to examine the effects of many different aspects of globalization representing a wide variety of strategies employed by governments in engaging the international economy.     

Japanese Network Capital: The Impact of Social Networks on Japanese Political Participation

Recent scholarship shows that social capital has a large influence on political behavior. Social capital’s definition includes trust, norms of reciprocity, and social networks. Most studies, however, ignore the networking component. Here, we test the influence of social networks on political participation using new Japanese survey data. We separately test the effects of involvement in formally organized voluntary associations and informal social networks. We also examine whether hierarchical networks have a different impact on participation than equal relationships. To determine if networks with bridging or bonding social capital affect participation differently, we also measure the openness to outsiders of these networks. Negative binomial regression models indicate a strong positive relationship between formal and informal social networking—including network hierarchy and some forms of openness—and political participation.     

Trade openness and public expenditure. The Spanish case, 1960–2000

The empirical link between the post-WWII expansion of international market integration and the growth of national public expenditure has been widely noted, with no consensus as yet regarding the interpretation of this correlation. We posit that a likely link between increased openness and public spending is the use of the latter to offset changes in the distribution of income that result from increased openness. To explore this potential link, we study time series data from Spain in 1960–2000, a period of major changes in political organization as well as in both fiscal and trade policy. We find evidence that democracy reinforced the causal relation from increased openness to greater public expenditure. Thus, the paper contributes to the literature that emphasizes that changes in political regimes are potentially important determinants of the observed international patterns of openness and government size.     

Shaping Local Councillor Preferences: Party Politics,Committee Structure and Social Background1

The preferences of politicians are crucial in a representative democracy. In order to change policy, voters must elect politicians who prefer to do so. Party affiliation may signal preferences to voters, but preferences are also shaped by institutional factors, such as committee membership and social background. This article assesses whether political, institutional or social background explanations best explain spending preferences, based on a survey of 1,200 Danish municipal councillors. Simulations of the relative effect of such variables show that party membership is the most important explanation of spending preferences. Social background, including age, gender, occupation and education, has limited impact, but female, young and better-educated politicians are likely to prefer higher spending. The committee structure is more important. Standing committee membership and seniority have a substantial positive effect on preferences. Although spending advocacy does exist, guardians are harder to find. Even though the members of the economic committee are responsible for the overall economic situation, spending preferences among these politicians are not systematically different.     

Mayoral Quality and Local Public Finance

In most local developing settings, the political leader and the municipal manager are embodied in the same figure, the directly elected mayor. This research explores the impact of mayoral quality on local public finances in a developing country. Mayoral quality is operationalized as educational background and job-related expertise to analyze its impact on two local financial indicators: property tax collection and social spending per capita. The mayoral quality thesis is tested across 40 Colombian municipalities over five years (2000–2004). After considering other political, economic, and external influences, the findings reveal that mayoral quality is associated with greater property tax collection and more social spending per capita. This positive influence, however, decreases under external constraints—such as presence of illegal armed groups. This study demonstrates how much influence the mayor can have when circumstances permit. The findings point to the significance of electing qualified mayors, as decentralization may not directly improve subnational finance. Instead, through decentralization, qualified mayors contribute to improved local public finance.     

Die „Friedensdividende“ der Globalisierung: Außenwirtschaftliche Öffnung und innenpolitische Stabilität in den Entwicklungsländern

One of the disputed consequences of global economic integration is the possible effect that foreign economic liberalization exerts on social cohesion. Proponents of commercial liberalism expect a stabilization, while globalization critics are much more sceptical. They assume, at least in the short run, destabilizing effects. We examine in this paper the contradictory claims for the developing world. “The rush to free trade”, to use Rodrik’s famous metaphor, has been particularly pronounced in this group of countries. Our results refute, based on different indicators, the fear that growing economic interdependence undermines the all too often fragile developing countries. The positive effect of economic openness is, however, only limited.     

Oil,elections and fiscal transparency

How does governments’ ability to gain financing from oil income affect their behaviour? Numerous studies have explored the effects of oil wealth on countries’ political characteristics, especially the level of democracy. Oil has also been associated with a significant electoral incumbency advantage across different political regimes. However, the relationship between oil wealth and incumbent governments’ behaviour, including election-year fiscal manipulation, has been studied to a lesser extent. This article argues that higher oil rents increase election-year public spending as they provide national governments both with direct revenue and increased financing opportunities. However, fiscal transparency mitigates this effect. Consequently, oil-induced electoral budget cycles decrease as fiscal transparency increases. Using a high-quality measure of fiscal transparency in a panel of countries, robust evidence in favour of this argument is found. The findings suggest that many of the previous results on the political effects of oil, including incumbency advantage, might run through an election-year spending channel, and that fiscal institutions might matter substantially for the political effects of oil.     

Impact of trade and investment on income surge in Bangladesh: Evidence from trade liberalization regime

Trade and investment are crucial drivers of economic growth. Successful execution of trade and investment policy can elevate a developing country to a sustained growth path and make it self-reliant. Bangladesh implemented a trade liberalization policy in the 1980s, deviating much from its conservative trade policy. This article assesses the impacts of trade, investment in physical as well as human capital, and a few trade policy variables on income surge for the liberalized regime. The econometric analysis finds that export, import, and domestic investment stimulate income. The impact of foreign investment is not conducive. Public spending on education also contributes to the income surge. Among the policy variables, trade openness and currency depreciation produce a beneficial impact. Population growth retards economic growth. The baseline results hold in the estimations involving several specifications of variables and testified as robust. The article views that a comprehensive approach to trade and investment policy would ensure the comparative advantage of trade and the well-being of Bangladesh.     

Does social spending add substance to formal rights?

This article examines the effects of social spending on political participation and various forms of collective action conditioned on a state's level of respect for empowerment rights. It brings the language of rights to the more well-developed comparative study of voter turnout. I theorize that a state which spends more on social initiatives drives down economic and social barriers between individuals and the polls or participating in collective action. This increases the substantive use of rights guaranteed formally by the state. I find that spending helps most where rights are already respected. I also find that spending can negatively impact participatory democracy where these rights are less well established. Ultimately, I conclude that institutional strength has a greater effect on the substantive use of rights than social spending.     

The effect of legislature size on public spending: evidence from a regression discontinuity design

What is the effect of legislature size on public spending? An answer to this question is provided by Weingast et al. (J Polit Econ 89(4):642–664, 1981), whose “law of 1/n” posits that an increase in the number of elected representatives always leads to an increase in public spending. Because elected politicians regard the tax base as a common pool from which they can finance specific projects for their constituencies, and these specific constituencies internalize the full benefits of the projects, but only bear a fraction of the costs (projects are financed from the common tax base), fiscal inefficiency will increase with the number of representatives. In this paper, I test the validity of the “law of 1/n” using a dataset of 9325 German municipalities between 2008 and 2010. Through the application of a regression discontinuity design, many of the methodological pitfalls of previous studies can be avoided and a valid estimation of the causal effect of legislature size on public spending for German municipalities can be determined. The results do not corroborate the positive findings of previous studies, which generally supported the implications of the “law of 1/n”. For the years 2008–2010, I find a negative effect of legislature size on public spending in German municipal councils.