Trade Tariff, Wage Gap and Public Spending
Michele Giuranno () and
Antonella Nocco ()
No 7847, CESifo Working Paper Series from CESifo Group Munich
This paper studies the interplay between the wage gap and government spending in a small open economy facing a shock in trade policy. We consider a specific factor model with an export sector, which uses skilled labour, and an import-competing sector, which uses unskilled labour. We find the conditions under which there exists an inverse (direct) relation between trade lib-eralization (protection), which increases (decreases) the skilled-unskilled wage gap, and the level of government expenditure. We also show how either an unbalanced distribution of political bargaining power, or tariff revenue co-financing 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 H50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-pol
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Working Paper: Trade tariff, wage gap and public spending (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7847
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