Bailout policy in a globalized economy

Nelly Exbrayat, Thierry Madiès () and Stephane Riou ()
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Thierry Madiès: Université de Fribourg, Faculté des sciences économiques et sociales - Albert-Ludwigs-Universität Freiburg = University of Freiburg

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Abstract: This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

Keywords: soft-budget constraint; tax competition; heterogenous firms; trade cost; location (search for similar items in EconPapers)
Date: 2014-01-07
New Economics Papers: this item is included in nep-int
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00925006v1
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Related works:
Working Paper: Bailout policy in a globalized economy (2014)
Working Paper: Bailout policy in a globalized economy (2014)
Working Paper: Bailout policy in a globalized economy (2013)
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