Globalisation and the Size of the Public Sector in the Context of the Regime Change Approach: The Case of Türkiye

Abstract

The size of the public sector in the economy is closely related to globalization. It aims to maximize welfare. There are two main hypotheses (efficiency and compensation) discussed in the literature on this relationship. Both hypotheses discuss the relationship between globalization and government size in terms of (i) the impact of globalization on public employment, (ii) the impact of globalization on public revenues, and (iii) the impact of globalization on public expenditure. Global and national economies are not static and periodically expand or contract. The main hypothesis of this study is that the validity of the efficiency and compensation hypothesis in economies varies according to expansion and contraction periods. In terms of financial and commercial globalization, this change is also differentiated. The results of this study, which is specific to Turkey, show that trade globalization has a positive effect on public employment and public expenditures within the scope of the compensation hypothesis, while the efficiency hypothesis is confirmed in the relationship between tax revenues and financial globalization. These results are exemplary for transition and developing countries in particular.