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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Discussion Papers ; No. 2013-7

Classification and Topics

• Classification: Wirtschaft ; Open Economy Macroeconomics ; Economic Growth of Open Economies
• Subject: Financial openness ; productivity ; volatility ; consumption-wealth ratio ; growth ; welfare ; size of government

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Erauskin, Iñaki
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/68841
• Last update: 10.03.2025, 11:44 AM CET