Globalization, Tax Distortions and Public Sector Retrenchment

摘要: It is widely perceived that globalization a threat to tax financed public sector activities. The argument activities (public consumption and transfers) by income taxes distort labour markets cause higher wages thus loss of competitiveness. Since this link strengthened globalization, it inferred the marginal costs funds increase retrenchment follows. We challenge whether these conclusions have support in general equilibrium model featuring standard effects from open macroeconomics trade theory. Even though taxation unambiguously worsens wage competitiveness, does not follow with product market integration due gains trade. Moreover, non-cooperative fiscal policies do race-to-the-bottom bias despite harm In fact we identify an expansionary likely when finance either or transfers.