On invitation of the Rural and Environmental History Group, Sergio Espuelas from Universitat de Barcelona will give a seminar on March 10, 2020. To attend, please register via email
Between 1850 and 2005, Spain has experienced major changes in its trade strategy, combining periods of high trade protectionism with periods of high trade openness. What has been the impact on social spending? The results of the econometric analysis suggest that globalization‘s impact on social spending is circumstantial. It depends on state’s fiscal capacity. When increasing trade openness is linked to high fiscal capacity, globalization’s impact on social spending is positive. That is, the compensation effect envisaged by Rodrik (1997) applies. However, when fiscal capacity is low, increasing trade openness has a negative impact on social spending, as expected by the race to the bottom hypothesis. In this latter case, social spending and social safety nets would develop more easily under trade-protectionist policies, resulting in a sort of second-best solution suitable for weak states. More generally, my results may help reconcile the conflicting hypothesis (and evidence) we find in the literature. Both the compensation effect hypothesis and the race to the bottom hypothesis hold, depending on whether state's fiscal capacity is high or low.