Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v114y2012i2p409-439.html
   My bibliography  Save this article

Globalization, Tax Distortions, and Public‐Sector Retrenchment

Author

Listed:
  • Torben M. Andersen
  • Allan Sørensen
Abstract
It is widely perceived that globalization inevitably leads to a retrenchment of tax‐financed public‐sector activities. The argument is that tax distortions increase when production is more easily relocated across countries (the elasticity argument). We question this perception in a model that captures standard mechanisms from trade and open‐economy models. Importantly, the retrenchment argument overlooks the fact that the basic effect of integration (i.e., gains from trade) tends to lower the marginal costs of public funds. Moreover, the elasticity argument is not unambiguously supported, and there is no race to the bottom as a result of the perceived terms‐of‐trade effects of non‐cooperative fiscal policies.

Suggested Citation

  • Torben M. Andersen & Allan Sørensen, 2012. "Globalization, Tax Distortions, and Public‐Sector Retrenchment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 409-439, June.
    • Handle: RePEc:bla:scandj:v:114:y:2012:i:2:p:409-439
    DOI: j.1467-9442.2011.01689.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9442.2011.01689.x
    Download Restriction: no
    File URL: https://libkey.io/j.1467-9442.2011.01689.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, vol. 69(2), pages 321-340, July.
    2. Michael C. Burda, 2001. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," Palgrave Macmillan Books, in: Deutsche Bundesbank (ed.), The Monetary Transmission Process, chapter 7, pages 252-282, Palgrave Macmillan.
    3. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    4. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    5. Andersen, Torben M., 2006. "The public sector and international integration," Economics Letters, Elsevier, vol. 93(2), pages 202-209, November.
    6. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, vol. 25(1-2), pages 111-127, August.
    7. James R. Hines Jr. & Lawrence H. Summers, 2009. "How Globalization Affects Tax Design," NBER Chapters, in: Tax Policy and the Economy, Volume 23, pages 123-157, National Bureau of Economic Research, Inc.
    8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, December.
    9. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December.
    10. Michiel Evers & Ruud de Mooij & Daniel van Vuuren, 2005. "What explains the variation in estimates of labour supply elasticities?," CPB Discussion Paper 51, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Andrew B Bernard & J Bradford Jensen, 2001. "Exporting and Productivity: The Importance of Reallocation," Working Papers 01-02, Center for Economic Studies, U.S. Census Bureau.
    12. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 48-104.
    13. Keuschnigg, Christian & Ribi, Evelyn, 2009. "Outsourcing, unemployment and welfare policy," Journal of International Economics, Elsevier, vol. 78(1), pages 168-176, June.
    14. Paolo Epifani & Gino Gancia, 2009. "Openness, Government Size and the Terms of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 629-668.
    15. Bruce, Neil & Purvis, Douglas D., 1985. "The specification and influence of goods and factor markets in open-economy macroeconomic models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 16, pages 807-857, Elsevier.
    16. Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
    17. van der Ploeg, Frederick, 1988. "International policy coordination in interdependent monetary economies," Journal of International Economics, Elsevier, vol. 25(1-2), pages 1-23, August.
    18. van der ploeg, F., 1987. "Coordination of optimal taxation in a two-country equilibrium model," Economics Letters, Elsevier, vol. 24(3), pages 279-285.
    19. Chari, V V & Kehoe, Patrick J, 1990. "International Coordination of Fiscal Policy in Limiting Economies," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 617-636, June.
    20. Lane, Philip R. & Perotti, Roberto, 2003. "The importance of composition of fiscal policy: evidence from different exchange rate regimes," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2253-2279, September.
    21. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    22. Mr. Dirk V Muir & Mr. Douglas Laxton & Mr. Dennis P Botman & Mr. Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 2006/045, International Monetary Fund.
    23. Mr. Vito Tanzi, 2000. "Globalization and the Future of Social Protection," IMF Working Papers 2000/012, International Monetary Fund.
    24. Devereux, Michael B, 1991. "The Terms of Trade and the International Coordination of Fiscal Policy," Economic Inquiry, Western Economic Association International, vol. 29(4), pages 720-736, October.
    25. Marston, Richard C., 1985. "Stabilization policies in open economies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 17, pages 859-916, Elsevier.
    26. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    27. Assaf Razin & Efraim Sadka, 2005. "The Decline of the Welfare State: Demography and Globalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182440, April.
    28. Torben M. Andersen, 2007. "Fiscal Policy Coordination and International Trade," Economica, London School of Economics and Political Science, vol. 74(294), pages 235-257, May.
    29. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Globalization and the size of the public sector
      by Economic Logician in Economic Logic on 2010-07-27 19:42:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Torben M. Andersen & Allan Sørensen, 2013. "Product market integration, tax distortions and public sector size," Economics Working Papers 2013-28, Department of Economics and Business Economics, Aarhus University.
    2. Andersen, Torben M. & Sørensen, Allan, 2023. "The interdependencies between the private and public sectors in open economies," European Economic Review, Elsevier, vol. 160(C).
    3. Jonathan Pycroft & Salvador Barrios, 2012. "Effective Green Taxation: Method and application to firm-level data," EcoMod2012 3874, EcoMod.
    4. Salvador Barrios & Jonathan Pycroft & Bert Saveyn, 2013. "The marginal cost of public funds in the EU: the case of labour versus green taxes," Taxation Papers 35, Directorate General Taxation and Customs Union, European Commission.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Torben M. Andersen & Allan Sørensen, 2013. "Product market integration, tax distortions and public sector size," Economics Working Papers 2013-28, Department of Economics and Business Economics, Aarhus University.
    2. Torben Andersen & Allan Sørensen, 2007. "Product Market Integration and Income Taxation: Distortions and Gains from Trade," CESifo Working Paper Series 2170, CESifo.
    3. Andersen, Torben M. & Sørensen, Allan, 2023. "The interdependencies between the private and public sectors in open economies," European Economic Review, Elsevier, vol. 160(C).
    4. Andersen, Torben M., 2006. "The public sector and international integration," Economics Letters, Elsevier, vol. 93(2), pages 202-209, November.
    5. Andersen, Torben M. & Spange, Morten, 2006. "International interdependencies in fiscal stabilization policies," European Economic Review, Elsevier, vol. 50(5), pages 1169-1195, July.
    6. Paolo Epifani & Gino Gancia, 2009. "Openness, Government Size and the Terms of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 629-668.
    7. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December.
    8. Andersen, Torben M. & Skaksen, Jan Rose, 2003. "Product Market Integration, Comparative Advantages and Labour Market Performance," IZA Discussion Papers 698, Institute of Labor Economics (IZA).
    9. Andersen, Torben M. & Sorensen, Jan Rose, 1995. "Unemployment and fiscal policy in an economic and monetary union," European Journal of Political Economy, Elsevier, vol. 11(1), pages 27-43, March.
    10. Paolo Epifani & Gino Gancia, 2005. "On Globalization and the Growth of Governments," Working Papers 267, Barcelona School of Economics.
    11. Torben Andersen & Allan Sørensen, 2011. "Globalisation squeezes the public sector—is it so obvious?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 369-382, August.
    12. Hassan Molana & Catia Montagna & Chang Yee Kwan, 2012. "Subsidies As Optimal Fiscal Stimuli," Bulletin of Economic Research, Wiley Blackwell, vol. 64(Supplemen), pages 149-167, December.
    13. Torben Andersen & Jan Skaksen, 2007. "Labour Demand, Wage Mark-ups and Product Market Integration," Journal of Economics, Springer, vol. 92(2), pages 103-135, October.
    14. Andersen, Torben M., 2005. "Product market integration, wage dispersion and unemployment," Labour Economics, Elsevier, vol. 12(3), pages 379-406, June.
    15. Lyon, Spencer G. & Waugh, Michael E., 2018. "Redistributing the gains from trade through progressive taxation," Journal of International Economics, Elsevier, vol. 115(C), pages 185-202.
    16. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2013. "Ricardian selection," Journal of International Economics, Elsevier, vol. 89(1), pages 96-109.
    17. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    18. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 533-559, March.
    19. repec:bla:scandj:v:104:y:2002:i:3:p:343-64 is not listed on IDEAS
    20. Andersen, Torben M., 2002. "International Integration, Risk and the Welfare State," IZA Discussion Papers 456, Institute of Labor Economics (IZA).
    21. Torben Andersen, 2001. "European Integration - A Downward Bias in Employment Policies?," CESifo Working Paper Series 574, CESifo.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • F1 - International Economics - - Trade
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:114:y:2012:i:2:p:409-439. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.