Title: Does protection harden budget constraints?
Authors: Everaert, Greetje ×
Vandenbussche, Hylke
Issue Date: 2001
Publisher: K.U.Leuven
Series Title: LICOS-Discussion paper pages:1-36
Abstract: In this paper we analyse the effects of soft budget constraints in an international context. Firstly, we show that soft budget constraints in an exporting country lead to higher levels of trade protection in the recipient country. Secondly, the model predicts that protectionist trade policy helps to harden budget softness in the exporting country. We therefore argue that, when industrial policy fails to enforce financial discipline, trade policy can take over this role. Finally, we discuss potential implications of our model for EU-policy with respect to Central and Eastern European Countries.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:LICOS - Centre for Institutions and Economic Performance, Leuven
× corresponding author

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