Journal Article

No. 2013-38 | October 01, 2013
The Impact of Financial Openness on the Size of Utility-enhancing Government PDF Icon


In this paper, the authors employ a portfolio approach based on a two-country world to study the impact of financial openness on the size of government and on other key economic variables, including the consumption-wealth ratio, the growth rate of wealth, and welfare (assuming that public spending is utility enhancing). The model suggests that the size of government, the consumption-wealth ratio, and welfare should be greater in an open economy because of higher productivity and/or less volatility because of risk sharing. The theoretical results for the growth rate depend on differences in productivity and in consumption-wealth ratios. The empirical evidence — based on a sample of 49 countries from 1970 to 2009 — broadly supports the main theoretical results of the model.

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JEL Classification

F41 F43


Iñaki Erauskin (2013). The Impact of Financial Openness on the Size of Utility-enhancing Government. Economics: The Open-Access, Open-Assessment E-Journal, 7 (2013-38): 1—56.


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