Globalization, Redistribution, and the Size of Government

Jonathan Ostry, Raphael Espinoza and Xiaoxiao Zhang

No 14137, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates how trade and financial globalization affect government decisions to redistribute via spending and taxation, using a large panel covering around 100 democratic countries over the period 1970-2015. We use a time-varying external instrument in regressions with fixed and time effects in order to overcome endogeneity concerns that have plagued the earlier literature. Our findings support the view that more open economies have bigger governments. The paper also examines the impact of globalization on different types of social spending and taxes. We find that trade openness increases the tax burden on labor income and reduces the tax burden on capital income and that financial openness reduces corporate income tax rates. In addition, exposure to trade pushes governments to spend more on labor programs and family benefits. Finally, the paper does not find that political institutions affect the sensitivity of public spending to globalization.

Keywords: Trade openness; Government size; Redistribution; Financial liberalization (search for similar items in EconPapers)
JEL-codes: F68 H11 H53 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-int
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP14137 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14137

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14137

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().