Can the Welfare State be Enhanced with Higher Corporate Tax in an Era of Trade Liberalization?

Abstract

We investigate globalization's (trade liberalization) linkages to corporate tax burdens (the share of corporate tax revenues in GDP) and social welfare expenditures and present three major findings. First, there is no significant evidence of tax competition on the corporate tax burden due to globalization. Instead, we find evidence that a positive or curvilinear relationship exists between globalization and corporate tax burdens. Second, there is a weak possibility that globalization deteriorates the welfare state; as the world economy becomes more integrated, we observe a decrease in the share of social welfare expenditures as a proportion of GDP. Finally, we provide a negative relationship between corporate tax burdens and the share of social welfare expenditures as a proportion of GDP. Conclusively, our findings could suggest two possible relationships among globalization, the corporate tax burden, and social welfare expenditures.