An Examination Of The Effects And Costs Of Temporary Policy
This paper examines the implications of the two basic components of Calvo¡¯s model (1987) for the effects and costs of temporary trade liberalization policy. First, by adopting a tax loss parameter in the basic model, the situation of incomplete tax compensation associated with temporary policy is analyzed as a more general case. This analysis includes the cases in which deadweight loss or government consumption exists. Using this model, it is seen that Calvo¡¯s results can hold in a more general situation, but only with some restrictions on the parameter values. Second, the implication of the infinite planning horizon of the consumer in temporary policy experiment is investigated by analyzing an extreme case of a finite horizon economy. By studying an overlapping generations economy with the same kind of temporary policy, it is seen that the length of the planning horizon of the consumer matters critically in evaluating the effects and costs of temporary liberalization policy.
Volume (Year): 29 (2004)
Issue (Month): 1 (June)
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- Calvo, Guillermo A., 1987. "On the costs of temporary policy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 245-261, October.
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