Trade globalization and social spending in Spain, 1850-2000

Sergio Espuelas ()

No 2021/413, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: Between 1850 and 2005, Spain experienced major changes in its trade orientation, combining periods of intense trade protectionism with periods of high trade openness. What was the impact on social spending? The econometric results suggest that globalization effect in 1850-2000 Spain has been conditional on fiscal capacity. When fiscal capacity has been high, trade openness has had a positive effect. However, when fiscal capacity has been low, trade-openness effect on social spending has been negative. The results are robust to alternative measures of fiscal capacity and consistent with a placebo test. This would explain why after the 1960s social spending in Spain increased in parallel with trade openness, whereas before that date social spending grew (slowly) in a context of increasing trade protectionism. Thus, both the compensation effect and the race to the bottom find empirical support but the final outcome depends on the fiscal context.

Keywords: Social spending; trade openness; globalization; Spain. (search for similar items in EconPapers)
JEL-codes: F68 H5 N3 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2021
New Economics Papers: this item is included in nep-his and nep-int
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