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.