Journal
EUROPEAN JOURNAL OF POLITICAL ECONOMY
Volume 59, Issue -, Pages 296-315Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.ejpoleco.2019.04.001
Keywords
Trade liberalization; Capital market openness; Redistributive taxation; Median voter
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We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization-trade liberalization and financial openness could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel data set. On average, globalization is associated with lower taxation but there is some evidence that in countries with high capital-labor ratio, globalization is associated with increased taxation. We make a distinction between de fore and de facto measures of globalization and find a strong negative relationship between taxation and de jure measures of globalization. The results for de facto measures of globalization are mixed.
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