Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/207238 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7847
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies the interplay between the wage gap and government spending in a small open economy facing a shock in trade policy. We consider a specific factor model with an export sector, which uses skilled labour, and an import-competing sector, which uses unskilled labour. We find the conditions under which there exists an inverse (direct) relation between trade lib-eralization (protection), which increases (decreases) the skilled-unskilled wage gap, and the level of government expenditure. We also show how either an unbalanced distribution of political bargaining power, or tariff revenue co-financing public spending may break this direct relation.
Subjects: 
wage gap
trade liberalization
positive political economy
JEL: 
F15
F16
H50
Document Type: 
Working Paper
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