Globalization and income inequality: How public sector spending moderates this relationship in affluent countries

This study revisits the question of whether global market integration increases net income inequality in affluent countries. Prior research treats the relationship between globalization and income inequality as invariant across different national contexts. Conversely, the author argues that this relationship is best understood as a moderated causal effect, in which the redistributive influences of public sector spending diminish and eventually negate globalization’s otherwise positive effect on income inequality. This argument implies that the distributional consequences of globalization vary cross-nationally due to substantial differences in public sector spending found among affluent countries. Using unbalanced panel data from 16 Western countries observed between 1970 and 2010, the author tests this assertion with panel regression techniques. The results provide qualified support for the hypothesized conditional relationship, with interaction terms between public sector spending and Southern imports being statistically significant across different model specifications and different estimating strategies.