Globalization, Domestic Politics, and Social Spending in Latin America: A Time-Series Cross-Section Analysis, 1973–97

Abstract

This study examines the effects of globalization, democratization, and partisanship on social spending in fourteen Latin American countries from 1973 to 1997, using a pooled time-series error-correction model. The authors examine three sets of issues. First, following debates in the literature on OECD countries, they want to know whether social spending has been encouraged or constrained by integration into global markets. Within this context, they examine the extent to which such outcomes might be influenced by two additional sets of domestic political and institutional factors discussed in work on developed countries: the electoral pressures of democratic institutions and whether or not popularly based governments are in power.The authors show that trade integration has a consistently negative effect on aggregate social spending and that this is compounded by openness to capital markets. This is the strongest and most robust finding in the study. Neither democratic nor popularly based governments consistently affect overall social spending. The authors then disaggregate spending into social security transfers and expenditures on health and education. They find that popularly based governments tend to protect social security transfers, which tend toflowdisproportionately to their unionized constituencies; but they have a negative impact on health and education spending. Conversely, a shift to democracy leads to increases in health and education spending, which reaches a larger segment of the population. The authors conclude by emphasizing the contrasting political log-ics of the different types of social spending.

Introduction: The International Diffusion of Liberalism

“…to determine which countries compete with each other, in which markets, and how intense the competition is+ Governments are also assumed to know how policy changes in other countries will affect the global economic landscape and how this will in turn affect welfare in their own countries+ Diffusion by competition is expected to increase the more intense the economic competition between countries and the more a given policy instrument is expected to influence that competition+ Finally, whereas coercion theorists assume that the most important relationships in diffusion processes are vertical, competition theorists assume that the most important relationships are horizontal+ The policies of one's economic equals are more important than the policies of the economic powers+ Policy liberalization should spread most readily among units that are similar on important competitive dimensions, among the Davids and among the Goliaths but not necessarily from the Goliaths to the Davids of the world+ That jurisdictions compete in their formulation of economic policies is hardly a new insight+ This dynamic has been documented extensively at the subnational level, 45 with respect to a wide range of phenomena ranging from tax concessions to the introduction of lotteries+ 46 Competitive models are increasingly employed in studies of regional integration, for example in the context of the European Union+ 47 Several influential studies argue that competition for mobile capital has driven macroeconomic "convergence" around the neoliberal ideal, first in the Organization for Economic Cooperation and Development~OECD! and then in the developing world as well, due to competition among countries for increasingly mobile capital and firms-reducing social programs 48 and shifting the tax burden from capital to labor+ 49 Unfortunately, however, most studies of global competition do not test the theory directly but assume that indicators of "openness" suffice to capture the pressures 45+ See Cai and Treisman 2004;andGray 1994+ 46+ See Berry andBerry 1990;Brueckner 2000;and Peterson and Rom 1990+ 47+ See, for example, Sinn and Ochel 2003+ 48+ See Garrett 1998Garrett and Mitchell 2001;Garrett 2001;Kaufman and Segura-Ubiergo 2001;and Rudra 2002+ The evidence for a race to the bottom in social spending under conditions of greater openness in these studies is decidedly mixed+ 49+ See Genschel 2002;Rodrik 1997;and Oates 2001+ After a decade of careful research, however, the empirical evidence on whether international market exposure has made taxes more regressive remains inconclusive+ See Baldwin and Krugman 2004;Garrett and Mitchell 2001;andSwank 1992 and governments experience to alter their fiscal or social policies+ ...…”

Political institutions and government spending behavior: theory and evidence from Iran

“…Although the relationships among regime type, economic growth, and income distribution are extensively explored in the literature, there is little work devoted to investigating the impact of political system characteristics on the different categories of government expenditures (Brown and Hunter, 1999;Kaufman and Segura-Ubiergo, 2001). Some of the existing studies consider the relationship between democracy and the total amount of the public sector.…”

The impact of globalization on the composition of government expenditures: Evidence from panel data

“…This result points to the crucial role of the political regime in accommodating the demand side of the political market. Analyzing Latin American countries, Kaufman and Segura-Ubiergo (2001) and Avelino, Brown and Hunter (2005) therefore control for the influence of the political regime. The empirical evidence uncovered by Kaufman and Segura-Ubiergo favours the efficiency hypothesis and suggests that democracies may be more responsive to compensation demands than other regimes, at least when it comes to social spending on health and education.…”