Openness, Welfare Spending, and Inequality in the Developing World

How does government social spending affect inequality in this era of globalization? This article investigates the relationship between openness, government social expenditures (i.e., education, health, and social security and welfare), and income distribution through a time-series cross-sectional panel data set for 35 less developed countries (LDCs) from 1972 to 1996. I compare these findings to the redistributive effects of social spending in 11 advanced industrialized economies. The results show that while all categories of social spending help improve income distribution in richer countries, the effects of social spending are much less favorable in LDCs. Only spending on education in LDCs encourages a more favorable distribution of income in the face of globalization. I argue that the pressures of a more competitive global economy increase incentives for more redistributive education spending, whereas publicly sponsored health programs and, particularly, social security and welfare programs confront greater political lobbying and clientelism.