The impact of financial openness on the size of utility-enhancing government
Iñaki Erauskin ()
No 2013-7, Economics Discussion Papers from Kiel Institute for the World Economy (IfW)
This paper studies the impact of financial openness on the size of government, and other key economic variables, such as the consumption-wealth ratio, the growth rate of wealth, and welfare, in a two-country world, based on a portfolio approach, assuming that public spending is utility-enhancing. The model suggests that the size of government, the consumption-wealth ratio, and welfare should be higher in an open economy due to a higher productivity and/or less volatility through risk sharing. The theoretical results for the growth rate depend on differences on productivities and consumption-wealth ratios. The empirical evidence based on a sample of 50 countries for the period 1970-2009 broadly supports the main theoretical results of the model, even though the inclusion of Singapore distorts sometimes the broad picture.
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)
New Economics Papers: this item is included in nep-fdg, nep-pbe and nep-sea
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Journal Article: The impact of financial openness on the size of utility-enhancing government (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:20137
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