GEP Research Paper 07/29
Tariff Reforms with Rigid Wages
Rod Falvey and Udo Kreickemeier
Summary
In this paper we extend recent modelling of welfare improving and market access improving reforms to a context of unemployment due to a fixed (in numeraire or real terms) wage.
Abstract
This paper analyses the effects of tariff reforms on welfare and market access in a competitive small open economy that is characterised by involuntary unemployment due to non-market clearing wages that are fixed either in terms of the numeraire or in real terms. We show that recent tariff-reform results can be extended to integrated reforms of tariffs and the wage rate, and that the inherent tension between reforms that increase welfare and market access carry over. We also derive welfare increasing tariff-reform strategies that keep the wage rate constant, and show that this tension may be attenuated.
Issued in September 2007
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