Abram Bergson

Nelly Exbrayat (), Thierry Madiès and Stéphane Riou ()
Additional contact information
Nelly Exbrayat: Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,Université Jean Monnet, Saint-Etienne, F-42000, France
Thierry Madiès: University of Fribourg, FacultÈ des sciences Èconomiques et sociales, boulevard de Perolles, 90, 1700 Fribourg (Switzerland)
Stéphane Riou: Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,Université Jean Monnet, Saint-Etienne, F-42000, France ; Université Grenoble 2, UMR 1215 GAEL F3800 Grenoble, France

No 1340, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper explores how trade integration influences the decision by national governments to bailout manufacturing firms. We develop a 2-country model of generalized oligopoly with heterogenous firms and trade costs. High-cost firms are eligible for a bailout while low-cost firms are profitable. Our results show that trade liberalization influences both political benefits of a bailout and its relative cost as compared to a laissez-faire policy. If the fall in trade cost is so large that it allows high-cost firms to become exporters, governments might move away from a bailout policy to a laissez-faire policy. In contrast, a marginal decline in trade costs that does not affect the export status of high-cost firms, always makes governments more prone to adopt a bailout decision.

Keywords: soft-budget constraint; tax competition; heterogenous firms; trade cost; location (search for similar items in EconPapers)
JEL-codes: D21 F12 F15 H25 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1340

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