Globalisation Squeezes the Public Sector - Is it so Obvious?

University of Aarhus Working Paper No. 2008-08

15 Pages Posted: 1 Sep 2008

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Allan Soerensen

Aarhus University - School of Business and Social Sciences

Date Written: September 1, 2008

Abstract

It is widely perceived that globalization squeezes public sector activities by making taxation more costly. This is attributed to increased factor mobility and to a more elastic labour demand due to improved scope for relocation of production and thus employment across countries.

We argue that this consensus view overlooks that gains from trade unambiguously work to lower the marginal costs of public funds, and moreover that globalization via increased trade in intermediaries may actually lower the labour demand elasticity.

Keywords: Globalization, marginal costs of public funds, labour taxation

JEL Classification: F15, F4, H20, H40

Suggested Citation

Andersen, Torben M. and Soerensen, Allan, Globalisation Squeezes the Public Sector - Is it so Obvious? (September 1, 2008). University of Aarhus Working Paper No. 2008-08, Available at SSRN: https://ssrn.com/abstract=1261837 or http://dx.doi.org/10.2139/ssrn.1261837

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Bonn, D-53072
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Allan Soerensen

Aarhus University - School of Business and Social Sciences ( email )

Building 322
DK-8000 Aarhus C
Denmark

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