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The effect of trade openness on optimal government size under endogenous firm entry


Hanslin, Sandra (2008). The effect of trade openness on optimal government size under endogenous firm entry. Working paper series / Socioeconomic Institute No. 802, University of Zurich.

Abstract

This paper analyzes the effect of trade liberalization on government spending in a general equilibrium model with a continuum of industries supplying tradable and nontradable goods under monopolistic competition. Trade liberalization is modeled as the opening up of product markets between two countries, which may differ in total factor productivity, factor endowment and fix cost technology. In this setup, I show that the optimal provision of a public consumption good depends positively on the degree of openness. Moreover, the richer and more productive country chooses a lower optimal government share.

Abstract

This paper analyzes the effect of trade liberalization on government spending in a general equilibrium model with a continuum of industries supplying tradable and nontradable goods under monopolistic competition. Trade liberalization is modeled as the opening up of product markets between two countries, which may differ in total factor productivity, factor endowment and fix cost technology. In this setup, I show that the optimal provision of a public consumption good depends positively on the degree of openness. Moreover, the richer and more productive country chooses a lower optimal government share.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:F12, H40, F15
Language:English
Date:March 2008
Deposited On:29 Nov 2011 22:47
Last Modified:21 Nov 2017 15:37
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html

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