Relative government size in globalization and its welfare implications

Abstract

As globalization spreads across the world, countries are experiencing growing competitive pressure in many fields. Since the role of government is needed to change in this global era, the so-called government-size debate has become fierce. This article provides a measure of relative government size in globalization, and clarifies the welfare effect of relative government size in globalization applying a simplified dynamic utility theoretical approach. The main finding is that there is no systematic relationship between relative government size and relative welfare in globalization; such relation depends on behavioural parameters such as the elasticity of inter-temporal substitution of consumption and the disutility of labour. This result suggests that finding prerequisites for government consumption to play a welfare-improving role in globalization is more beneficial than the government-size debate.

Acknowledgement

This research was financially supported by Hansung University in the year of 2007.