Does Protection Harden Budget Constraints?
In this paper we analyse the effects of soft budget constraints in an international context. Firstly, we show that soft budget constraints in an exporting country lead to higher levels of trade protection in the recipient country. Secondly, the model predicts that protectionist trade policy helps to harden budget softness in the exporting country. We therefore argue that, when industrial policy fails to enforce financial discipline, trade policy can take over this role. Finally, we discuss potential implications of our model for EU-policy with respect to Central and Eastern Countries.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +32 (0) 16 / 32 6598
Fax: +32 (0) 16 / 32 6599
Web page: http://www.econ.kuleuven.be/licos
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:lic:licosd:9801. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.