The Politics of Economic Adjustment in a Liberal Market Economy: The Social Compensation Hypothesis Revisited

摘要

The 'compensation hypothesis' holds that increasing trade exposure gives rise to pressures for an expansion in public spending, especially on welfare items. We argue that the underlying relationship between economic openness and public spending and particularly on welfare effort in Ireland shows a surprising consistency that is at odds with this hypothesis. Our preliminary estimates show a persistently weak relationship between trade openness and 'social compensation', unlike the experience of other small open economies. We seek to explain these findings with reference to both structural economic constraints and domestic political preferences.