Globalisation and the Composition of Government SpendingAn analysis for OECD countries

  1. Norman Gemmell 1
  2. Richard Kneller 1
  3. Ismael Sanz 2
  1. 1 University of Nottingham
  2. 2 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Journal:
Notas técnicas: [continuación de Documentos de Trabajo FUNCAS]

ISSN: 1988-8767

Year of publication: 2006

Issue: 289

Type: Working paper

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Abstract

The ‘compensation’ and ‘efficiency’ hypotheses propose that globalisation affects both the total, and composition of public expenditures in quite different ways. Under the former economic insecurity leads to an expansion of the public sector and social expenditures, whereas under the efficiency hypothesis demands for lower taxes encourage a smaller public sector with greater emphasis on ‘privately productive’ spending. We test these hypotheses for a sample of OECD countries from 1980-1997. Using both the inward stock of FDI and openness as measures of globalisation we find no effect on the size of government, but that FDI significantly affects the composition of spending strongly supporting the compensation hypothesis.

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