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A closer look at general equilibrium effects on labour supply from trade restrictions


The aim of this paper is to construct both an analytical model and a numerical model that i) are consistent with each other, and ii) account for all relevant general equilibrium effects following fram a balanced budget increase in tariffs. Earlier contributions within this field have not captured all relevant general equilibrium effects of such trade restricting policies. The paper shows that the additional GE effects have significant implications for the analytical results. Furthermore, we show by means of the numerical model the importance of the "new" terms for the general equilibrium effects on labour supply. In order to make this note as short as possible, we discuss the small open economy case only, i.e., fixed world market prices. Furthermore, we restrict our attention to the tariff case. However, the general equilibrium effects we describe are also relevant for other trade-restrictions like import quotas.