Globalization, government spending and taxation in the OECD

This article assesses the impact of globalization on welfare state effort i n the OECD countries. Globalization is defined in terms of total trade, imp orts from low wage economies, foreign direct investment, and financial mark et integration. Welfare effort is analyzed in terms both of public spending (and separately on social service provision and income transfer programs) and taxation (effective rates of capital taxation and the ratio of capital to labor and consumption taxes). Year-to-year increases in total trade and international financial openness in the past three decades have been associ ated with less government spending. In contrast, integration into global ma rkets has not been associated either with reductions in capital tax rates, or with shifts in the burden of taxation from capital to consumption and la bor income. Moreover, countries with greater inflows and outflows of foreig n direct investment tend to tax capital more heavily.