The relationship between globalization and public spending: Empirical evidence from the Nordic countries.

Abstract: ABSTRACT The threat of globalization to public spending as well as a fiscal debate of the disciplining hypothesis and compensation hypothesis on large sample of countries, have been widely analyzed in the public finance literature. Yet the welfare states in Nordic countries with largest share of public expenditures have never been singled out for similar studies. This study employs a much more detailed government classification of public expenditures (COFOG), to investigate the impact of globalization on the composition of expenditures in Nordic countries from 1990-2007. Several measures of globalization are shown to affect some of the expenditures categories but not in a notable way. Further aggregating the expenditure categories into productive and unproductive expenditures, in order to find out whether it is the efficiency or compensation hypothesis that prevails in the Nordic countries. This study finds a slight support for the efficiency hypothesis over the compensation view.