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Globalization and Strategic Policy Interdependence across the OECD Robert J. Franzese, Jr. Associate Professor of Polit

Globalization and Strategic Policy Interdependence across the OECD Robert J. Franzese, Jr. Associate Professor of Political Science The University of Michigan, Ann Arbor franzese@umich.edu ; http://www.umich.edu/~franzese Jude C. Hays Assistant Professor of Political Science

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Globalization and Strategic Policy Interdependence across the OECD Robert J. Franzese, Jr. Associate Professor of Polit

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  1. Globalization and Strategic Policy Interdependence across the OECD Robert J. Franzese, Jr. Associate Professor of Political Science The University of Michigan, Ann Arbor franzese@umich.edu; http://www.umich.edu/~franzese Jude C. Hays Assistant Professor of Political Science The University of Illinois, Urbana-Champaign jchays@uiuc.edu; https://netfiles.uiuc.edu/jchays/www/page.html 17 November 2006

  2. Does economic globalization constrain the ability of national governments to redistribute income, risk, and opportunity through tax and expenditure policies? This is one of the central questions asked by international political economists who study globalization. There is no widely accepted answer to this question due, in large part, to disagreements about how to measure globalization and draw sound causal inferences from the data (Brune and Garrett 2005). The volume of trade and financial flows across borders, tariff rates and capital controls, and international price convergence all have been used in the empirical literature as measures of globalization. Most of the research simply tests whether these and other globalization variables correlate significantly with taxation and expenditure variables across time.

  3. All of the “measures” are problematic in some way. • The one relationship that gets overlooked is the spatial relationship. • Space is more than just a nuisance. • Theoretical Models: Basinger and Hallerberg, Tournament Model of Tax Competition; Franzese and Hays, Free-rider Model of Active Labor Market Spending. • Empirically, these theoretical frameworks lead to spatial lag models.

  4. Figure 1. Best Response Functions: Strategic Substitutes

  5. Estimation: Theory

  6. Estimation: Practice

  7. Estimation: Practice

  8. Estimation: Practice

  9. Presentation: Spatio-temporal Effects

  10. Conclusions • Space is more than nuisance, especially if you study globalization. • Model spatial relationships; Estimate them. • Get the Most out of Your Estimates.

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