The impact of financial openness on the size of utility-enhancing government

Iñaki Erauskin ()

No 2013-7, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper studies the impact of financial openness on the size of government, and other key economic variables, such as the consumption-wealth ratio, the growth rate of wealth, and welfare, in a two-country world, based on a portfolio approach, assuming that public spending is utility-enhancing. The model suggests that the size of government, the consumption-wealth ratio, and welfare should be higher in an open economy due to a higher productivity and/or less volatility through risk sharing. The theoretical results for the growth rate depend on differences on productivities and consumption-wealth ratios. The empirical evidence based on a sample of 50 countries for the period 1970-2009 broadly supports the main theoretical results of the model, even though the inclusion of Singapore distorts sometimes the broad picture.

Keywords: Financial openness; productivity; volatility; consumption-wealth ratio; growth; welfare; size of government (search for similar items in EconPapers)
JEL-codes: F41 F43 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-fdg, nep-pbe and nep-sea
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http://www.economics-ejournal.org/economics/discussionpapers/2013-7
https://www.econstor.eu/bitstream/10419/68841/1/735194882.pdf (application/pdf)

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Journal Article: The impact of financial openness on the size of utility-enhancing government (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:20137

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