Even though Dreher et al. (2008) conduct a thorough analysis, it is possible that their
level of aggregation is still too high. They consider relative shifts in, for example, total
education and social security expenditures. The drawback of considering such broad spending
categories is that the subtler eects of globalization on public budgets might be missed. That
is, globalization might have aected the composition of expenditures within broad budget
categories, while not changing their relative importance. With respect to public spending
on education, for example, globalization could have aected the distribution of education
expenditures between lower and higher education, while not aecting the relative importance
of education expenditures as a whole vis-a-vis other expenditure categories.
Therefore, we explore in this study whether globalization has an eect on the composition
of public education expenditures. More specically, we analyze how globalization aects the
allocation of public education expenditures on primary, secondary, and tertiary programs.
A noteworthy precursor to our study is Ansell (2008). He constructs a model that is based
on the insight that industrialized and developing countries have dierent factor endowments.
He derives that globalization will aect the returns to factors of production dierently in
industrialized and developing countries (see the next section for a more detailed discussion).
His model leads to the conclusion that governments in developing countries will attach more
importance to primary and less to tertiary education with deepening globalization, while those
in industrialized countries will pursue the opposite policy. Even though he also presents some
empirical evidence in support of this hypothesis, this particular research question is only one
of several in his paper and not fully explored.3
We extend Ansell’s work in various directions. First, while taking into account that glob-
alization might aect factor prices in industrialized and developing countries dierently, we
additionally acknowledge the contributions of the literature on international tax competition
(surveyed above) in our theoretical model. We argue in the model that globalization increases
tax competition and thereby reduces the government’s ability to redistribute income through
the tax-transfer system. This, in turn, causes governments to rely increasingly on educa-
tional policies for redistributive purposes.4 Second, we also extend Ansell’s empirical analysis
by using a more sophisticated measure for the extent of globalization, applying panel data
techniques, and controlling for potential endogeneity.
The remainder of this paper is structured as follows. In the next section, we develop a simple
theoretical model to analyze the relationship between globalization and the composition of
education expenditures. We test the implications of the model with panel data covering 86
countries over the 1999-2006 period in section 3. In section 4, we conclude.
3 Other notable theoretical contributions on the impact of globalization on educational policies are Anderson
(2005), Anderson and Konrad (2003), Haupt and Janeba (2009), and Viaene and Zilcha (2002). Apart from
Ansell (2008), there is, to our knowledge, no further empirical study on the eect of globalization on the
composition of education expenditures.
4As discussed in Hanushek et al. (2003), the idea of using educational policies as an alternative means of
redistribution is fairly standard.