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Customs unions and national budgets

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  • Haaparanta, Pertti

Abstract

It is shown that the Dixit-Norman argument for the creation of an optimal customs union without lump sum transfers presupposes either that there exists a joint fiscal authority in the union or that lump sum transfers between national governments are possible. A necessary and sufficient condition for the decentralized implementation of the optimal union is derived. This condition is related to the old discussion of trade creation vs. trade diversion. The other contribution of the paper is to extend the Dixit-Norman argument to customs unions with factor mobility i.e. to common markets.

Suggested Citation

  • Haaparanta, Pertti, 1988. "Customs unions and national budgets," Bank of Finland Research Discussion Papers 18/1988, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1988_018
    as

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    References listed on IDEAS

    as
    1. Grandmont, J. M. & McFadden, D., 1972. "A technical note on classical gains from trade," Journal of International Economics, Elsevier, vol. 2(2), pages 109-125, May.
    2. Viren, Matti, 1988. "Interest rates and budget deficits : Cross-country evidence from the period 1924-1938," Economics Letters, Elsevier, vol. 28(3), pages 235-238.
    3. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
    4. Åkerholm, Johnny, 1988. "External adjustment in small open economies : Some recent experience," Research Discussion Papers 6/1988, Bank of Finland.
    5. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
    6. Virén, Matti, 1988. "Interest rates and budget deficits : Cross-country evidence from the period 1924-1938," Research Discussion Papers 13/1988, Bank of Finland.
    7. Kemp, Murray C. & Wan, Henry Jr., 1986. "Gains from trade with and without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 99-110, August.
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