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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
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    File URL: https://www.econstor.eu/bitstream/10419/211521/1/bof-rdp1988-018.pdf
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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. repec:zbw:bofrdp:1988_013 is not listed on IDEAS
    4. 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.
    5. repec:zbw:bofrdp:1988_006 is not listed on IDEAS
    6. 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.
    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.
    Full references (including those not matched with items on IDEAS)

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