Tariff reforms with rigid wages |
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Authors: | Rod Falvey Udo Kreickemeier |
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Institution: | (1) GEP, University of Nottingham, School of Economics, University Park, Nottingham, NG7 2RD, UK |
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Abstract: | This paper analyses the effects of tariff reforms on welfare and market access in a competitive small open economy, which
is characterised by involuntary unemployment due to non-market clearing wages that are fixed either in terms of the numeraire
or in real terms. We show that recent tariff-reform results can be extended to integrated reforms of tariffs and the wage
rate, and that the inherent tension between reforms that increase welfare and market access carries over. We also derive welfare
increasing tariff-reform strategies that keep the wage rate constant and show that this tension may be attenuated.
We thank Peter Neary, an anonymous referee, as well as participants at the GEP Conference on New Directions in Trade Theory
and at the ETSG Annual Conference in Athens for helpful comments. We acknowledge gratefully financial support from the Leverhulme
Trust under Programme Grant F114/BF. |
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Keywords: | Tariff reform Unemployment Small open economy |
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