Trade openness and public expenditure on labor market policies

Elisa Borghi

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: This article investigates the effect of trade openness on public expenditure on labor market policies, both passive and active, using a panel of 20 OECD countries in the period 1980-2003. Trade openness and, more in general, globalization, can increase job insecurity and inequality, and therefore governments’expenditure can increase in order to offer compensation or insurance (compensation hypothesis). On the other hand, the increased competitiveness in the global arena constraints the ability of expanding public expenditure both because of efficiency reasons and tax competition effects (efficiency assumption). This study shows that both channels play a role in shaping public expenditure on passive and active labor market policies and that different aspects of globalization have a different impact.

Keywords: Social expenditure; Labor market policies; Trade openness (search for similar items in EconPapers)
JEL-codes: F16 H53 (search for similar items in EconPapers)
Date: 2010-06-25
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mil:wpdepa:2010-21

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