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Trade Tariff, Wage Gap and Public Spending

Michele Giuranno () and Antonella Nocco ()

No 7847, CESifo Working Paper Series from CESifo Group Munich

Abstract: 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
Date: 2019
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Working Paper: Trade tariff, wage gap and public spending (2015) Downloads
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