The impact of globalization on the composition of

Authors: Axel Dreher JanEgbert Sturm Heinrich W Ursprung

Publish Date: 2007/09/15

Volume: 134, Issue: 3-4, Pages: 263-292

PDF Link

Abstract

According to the disciplining hypothesis globalization restrains governments by inducing increased budgetary pressure As a consequence governments may attempt to curtail the welfare state which is often seen as a drag on international competitiveness by reducing especially their expenditures on transfers and subsidies This globalizationinduced welfare state retrenchment is potentially mitigated by citizens’ preferences to be compensated for the risks of globalization “compensation hypothesis” Employing two different datasets and various measures of globalization we analyze whether globalization has indeed influenced the composition of government expenditures For a sample of 60 countries we examine the development of four broad expenditure categories for the period 1971–2001 capital expenditures expenditures for goods and services interest payments and subsidies and other current transfers A second dataset provides a much more detailed classification public expenditures expenditures for defence order economic affairs environment housing health recreation education and social expenditures However this second data set is only available since 1990—and only for OECD countries Our results show that globalization did not influence the composition of government expenditures in a notable way

Keywords: