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The impact of financial openness on the size of utility-enhancing government

Iñaki Erauskin ()

Economics - The Open-Access, Open-Assessment E-Journal, 2013, vol. 7, No 2013-38, 56 pages

Abstract: In this paper, we employ a portfolio approach based on a two-country world to study the impact of financial openness on the size of government and on other key economic variables, including the consumption-wealth ratio, the growth rate of wealth, and welfare (assuming that public spending is utility enhancing). The model suggests that the size of government, the consumption-wealth ratio, and welfare should be greater in an open economy because of higher productivity and/or less volatility because of risk sharing. The theoretical results for the growth rate depend on differences in productivity and in consumption-wealth ratios. The empirical evidence - based on a sample of 49 countries from 1970 to 2009-broadly supports the main theoretical results of the model.

Keywords: Financial openness; productivity; volatility; consumption-wealth ratio; growth; welfare; size of government (search for similar items in EconPapers)
JEL-codes: F41 F43 (search for similar items in EconPapers)
Date: 2013
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http://dx.doi.org/10.5018/economics-ejournal.ja.2013-38
https://www.econstor.eu/bitstream/10419/85340/1/76909290X.pdf (application/pdf)

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