Trade globalization and social spending in Spain, 1850-2000

Between 1850 and 2000, Spanish trade openness experienced major changes. What was the impact on social spending? The econometric results suggest that globalization effect was conditional on fiscal capacity. When fiscal capacity was high (after the 1960s), trade openness had a positive effect on social spending. However, when fiscal capacity was low, trade openness effect was negative. The results are robust to alternative measures of fiscal capacity and consistent with a placebo test. Both the compensation effect and the race-to-the-bottom hypothesis find some empirical support: the final outcome depends on fiscal capacity.

Automated summary

Between 1850 and 2000, Spanish trade openness underwent changes, which had an impact on social spending. The study shows that the effect of trade openness on social spending depends on fiscal capacity. When fiscal capacity is high, trade openness has a positive effect, while it has a negative effect when fiscal capacity is low.