Working Paper: CEPR ID: DP7048
Authors: Giuseppe Bertola; Anna Lo Prete
Abstract: We document significant and robust empirical relationships in cross-country panel data between government size or social expenditure on the one hand, and trade and financial development indicators on the other. Across countries, deeper economic integration is associated with more intense government redistribution, but more developed financial markets weaken that relationship. Over time, controlling for country-specific effects, public social expenditure appears to be eroded by globalization trends where financial market development can more easily substitute for it.
Keywords: financial development; globalization; social policy
JEL Codes: F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased openness to international trade (F69) | larger government budgets (H60) |
| increased openness to international trade (F69) | more intense redistribution efforts (D30) |
| more developed financial markets (G19) | weaken positive association between openness and government redistribution (P26) |
| increased openness (O36) | decrease in government social expenditure (H53) |
| financial market maturity (G19) | decrease in government social expenditure (H53) |
| government expenditure (H59) | openness (O36) |
| financial development interacts with openness (F30) | impact on intensity of government interference (F69) |