IMPACT OF GLOBALIZATION ON STATE DISTRIBUTIVE ABILITY IN THE SAARC REGION

Abstract

This study estimates the relationship between public sector social expenditure and the extent of globalization. The study tested the existence of compensation or efficiency hypothesis by estimating a fixed effect panel data analysis of four SAARC countries i.e. Pakistan, India, Bangladesh, and Sri Lanka for the time period of 1991-2012. The results showed that due to globalization, the state’s distributive ability of social expenditure has been altered forefficiency hypothesis in SAARC countries. The public sector social expenditure falls because the government offers tax incentives to induce foreign investments. The reduction in various kinds of taxes results in lower tax revenues which in return reduce the allocation of budget towards various social expenditures such as education, health, subsidies & other transfer payments.