The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data

45 Pages Posted: 25 Jul 2006

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Heinrich W. Ursprung

University of Konstanz; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2006

Abstract

According to the disciplining hypothesis, globalization restrains governments by inducing increased budgetary pressure. As a consequence, governments shift their expenditures in favour of transfers and subsidies and away from capital expenditures. This expenditure shift is potentially enhanced 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 108 countries, we examine the development of four broad expenditure categories for the period 1970-2001: 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 environment, housing, health, recreation, education, and social expenditures. However, this second data set is only available since 1990 - and only for the OECD countries. Our results show that globalization did not influence the composition of government expenditures.

Keywords: globalization, economic policy, government expenditure composition, tax competition

JEL Classification: H7, H87, C23

Suggested Citation

Dreher, Axel and Sturm, Jan-Egbert and Ursprung, Heinrich, The Impact of Globalization on the Composition of Government Expenditures: Evidence from Panel Data (July 2006). CESifo Working Paper Series No. 1755. Available at SSRN: https://ssrn.com/abstract=920341

Axel Dreher

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Jan-Egbert Sturm (Contact Author)

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Heinrich Ursprung

University of Konstanz ( email )

Konstanz, D-78457
Germany
+49 7531 88 3713 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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