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Trade Liberalization and its Fiscal Implications in a North-South Trade Model

Author

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  • Stibora, Joachim

    (Kingston University London)

  • de Vaal, Albert

    (Radboud University Nijmegen)

Abstract

We study the fiscal implications of trade liberalization in a North-South trade model with nonhomothetic preferences. Combining a Ricardian trade model with a continuum of competitive goods and a public good, nonhomothetic preferences imply that both the global income distribution and the local income distribution matter for gauging the effects of different trade liberalization regimes on income taxes and public good provision. The fiscal implications of tariff reductions are typically more adverse for poorer countries than for richer countries. We also find that unilateral trade liberalization by richer countries is a more viable policy option to pursue than multilaterally reducing tariffs.

Suggested Citation

  • Stibora, Joachim & de Vaal, Albert, 2007. "Trade Liberalization and its Fiscal Implications in a North-South Trade Model," Economics Discussion Papers 2007-1, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2007_001
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    References listed on IDEAS

    as
    1. Keen, Michael & Ligthart, Jenny E., 2002. "Coordinating tariff reduction and domestic tax reform," Journal of International Economics, Elsevier, vol. 56(2), pages 489-507, March.
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    3. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
    4. Stibora, Joachim & de Vaal, Albert, 2007. "Trade policy in a Ricardian model with a continuum of goods under nonhomothetic preferences," Journal of Development Economics, Elsevier, vol. 84(1), pages 350-377, September.
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    Cited by:

    1. Joachim Stibora & Albert de Vaal, 2012. "Multilateral trade liberalization and public goods provision in a North-South trade model with nonhomothetic preferences," Economics and Business Letters, Oviedo University Press, vol. 1(2), pages 27-36.

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    More about this item

    Keywords

    Ricardian trade model; Asymmetric demand complementarities; Trade liberalization; Tax reform; Public goods; Income distribution;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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