Trade, Democracy and the Size of the Public Sector: The Political Underpinnings of Openness.

• Main Authors: Carles Boix, Alícia Adserà
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Subjects: First Nations
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.7.5403; http://www.isr.umich.edu/cps/pewpa/archive/archive_98/19980029.pdf

In the growing literature that shows that higher levels of trade lead to a larger public sector, politics remains prominently absent. As openness increases, the state, acting as a social planner, adopts a salient role to minimize the risks of higher economic integration as well as secure social peace. Given the highly redistributive nature of both trade and fiscal policies, we claim, however, that the interaction of the international economy and domestic politics may lead to three distinct political-economic equilibria. First, nations may embrace protectionist policies to shore up the welfare of key domestic sectors -- without having to engage, therefore, in substantial public spending. Second, to maintain trade openness in democratic settings, policymakers have to develop publicly-funded compensatory schemes to muster the support of the losers of higher economic integration. Finally, given the tax burden of public compensation, pro-free trade sectors may resort to impose an authoritarian regime to exclude (instead of buying off) their opponents. After exploring, through a formal model, the conditions under which each of these three regimes emerges, we successfully test the implications of the paper on a sample of around sixty developing and developed nations for the period 1950-1990. In this literature, different institutional structures may distort or slow down the current balance of power of socioeconomic actors (yet without contradicting them permanently). See Garrett and Lange (1996) and also Alt et al. (1996). 1 In exploring the interaction of the international economy and domestic politics, two research agendas stand out in the last years. On the one hand, a first avenue of inquiry has examined how domestic politics determines trade policy and the degree of econo.