Trade tariff, wage gap and public spending

Michele Giuranno and Antonella Nocco

POLIS Working Papers from Institute of Public Policy and Public Choice - POLIS

Abstract: This paper studies the interplay between wage gap and government spending in a small open economy facing a liberalization of commodities trade with the external world. We consider a developing economy with two sectors: an export sector, which uses capital and unskilled labour, and an import-competing sector, which uses capital and skilled labour. In this specific factor model, the return to capital is the link between the two sectors. We show that there exists a direct relation between trade liberalization, which decreases the skilled-unskilled wage gap, and the level of government expenditure. However, either an unbalanced distribution of political bargaining power, or tariff revenue co-financing of public spending may break this direct relation.

Keywords: wage gap; trade liberalization; positive political economy (search for similar items in EconPapers)
JEL-codes: F15 F16 H5 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2015-11
New Economics Papers: this item is included in nep-int
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Related works:
Journal Article: Trade tariff, wage gap and public spending (2020)
Working Paper: Trade Tariff, Wage Gap and Public Spending (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:uca:ucapdv:181

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