© Moritz Buschmann; November 2009 From myth to reality: Globalisation and public spending in OECD countries revisited Reseaerch Note by Marius R. Busemeyer.

© Moritz Buschmann; November 2009

From myth to reality:

Globalisation and public spending in

OECD countries revisited

Reseaerch Note

by Marius R. Busemeyer


The research problem (1)

Research question:

How does globalisation affect public

spending in OECD countries?



Two hypothesis:

1. “Efficiency thesis”: Globalisation leads to lower taxes because decision makers fear the exodus of capital → lower public spending (“race to the bottom”)

2. “Compensation thesis”: Globalisation leads to problems in societies, these problems have to be compensated by governments → higher public spending



Literature:

• Trend: empirical evidence for “compensation thesis”

• Domestic institutions and parties matter



Criticism on results in the literature:

• old data (until mid. 90s)• static view (level of globalisation, not change)• “efficiency thesis” too simplistic• Narrow approaches (long run and broad effect)• No distinction between eras of globalisation

(data pooling)


Research design (1)

Dependent Variables:

• total public spending (% of GDP)• total public social spending (% of GDP)• total spending on social transfers (% of GDP)• Non social public spending (% of GDP)


Research design (2)

Independent Variables:

• trade openness (∅ imports/exports % of GDP)

• KOF index (realized trade, capital flows and domestic financial trade barriers)

• Net capital transfers (% of GDP)


Research design (3)

Control Variables:• Unemployment• Inflation• Well-being (national income per capita)• Age distribution (share of pop. <15 + >65)• De-industrialization index• Female labour force participation• Parties (Social Democrats in government)• EU-Membership in the 90s (Maastricht Criteria)• Country size



Research design (4)

The Model:

• No data pooling of years• Simple cross-sectional regression• Dynamic model investigating differences of the

variables within countries + Error Correction Model (ECM) to include long term effects (lagged variables)









Conclusion

What has to be discussed?

• “compensation thesis” outdated?

• what about “efficiency thesis”?

• problem of causation

• methodological lessons to learn?

© Moritz Buschmann; November 2009 From myth to reality: Globalisation and public spending in OECD countries revisited Reseaerch Note by Marius R. Busemeyer.

Documents

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moritz buschmann

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research problem

research design

social public spending

total public spending

gdp total spending