Globalisation of the economy and the nation state

In the final analysis, the assessment of the efficiency and compensation effects of globalisation is, of course, an empirical matter. Nevertheless, it appears useful to take a closer look at the mechanisms at work in order to better understand the welfare implications of globalisation and the (change in) policy options that arise from a more integrated world economy. We therefore cover empirical as well as theoretical results in this survey. The paper is organised as follows. In Section 2 we elaborate on the definition of the term globalisation, investigate the quantitative significance of the phenomenon, and speculate about its causes. In Section 3 we summarise the theoretical literature on tax competition and provide a survey on the respective empirical evidence. The expenditure side of fiscal policy is dealt with in Section 4. We start out by investigating the determinants of government growth in order to assess the globalisation impact on the level of government spending. Then the studies presenting direct empirical evidence are summarised and discussed. Finally, we turn to the relationship between globalisation and the pattern of public spending. Section 5 concludes.