Globalisation Squeezes the Public Sector - Is it so Obvious?
University of Aarhus Working Paper No. 2008-08
15 Pages Posted: 1 Sep 2008
Date Written: September 1, 2008
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: Suggested Citation