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Empirica

, Volume 41, Issue 3, pp 505–540 | Cite as

A general equilibrium evaluation of the fiscal costs of trade liberalization in Ukraine

  • Miriam FreyEmail author
  • Zoryana Olekseyuk
Original Paper

Abstract

The establishment of an Association Agreement/Deep and Comprehensive Free Trade Agreement (AA/DCFTA) with the European Union (EU) would be the next significant step towards Ukraine’s deeper integration into the world economy. Despite widely expected additional welfare gains, the signing of the AA/DCFTA at the Third Eastern Partnership summit in November 2013 in Vilnius was suspended by the Ukrainian government due to geopolitical concerns and a severe economic and financial crisis in Ukraine coming along with high external debt and a substantial public budget deficit. This puts the fiscal consequences of Ukraine’s continued liberalization into focus, as transition and developing countries face higher fiscal costs associated with trade integration. Accordingly, this paper contributes to the literature by analyzing the part of the potential EU-Ukraine DCFTA which leads to a loss of tariff revenues, namely the tariff elimination. In particular, we apply a static Computable General Equilibrium (CGE) model for the single small open economy of Ukraine and focus on the effects of Ukraine’s unilateral tariff elimination by simulating three scenarios reflecting different means to compensate for the loss of tariff revenues. It turns out to be important to take these costs into consideration while modeling trade liberalization, as the results vary significantly across the scenarios.

Keywords

Ukraine EU Trade Integration CGE Public spending 

JEL Classification

C68 F13 F15 H50 O52 

Notes

Acknowledgments

The authors thank the editor, three anonymous referees, Volker Clausen, Richard Frensch, Jürgen Jerger, Veronika Movchan, Ferdinand Pavel, Hannah Schürenberg-Frosch, and participants at EcoMod2012 (Seville), 15th Annual Conference on Global Economic Analysis “New Challenges for Global Trade and Sustainable Development” (Geneva), 5th FIW Research Conference “International Economics” (Vienna), 13th Annual Conference of the International Network for Economic Research (London), Thirteenth Annual Conference of the European Trade Study Group (Copenhagen), International Workshop on Recent Issues in European Economic Integration and EU Enlargement (Brussels), XIIth International Academic Conference on Economic and Social Development (Moscow), 13. Göttinger Workshop “Internationale Wirtschaftsbeziehungen” (Göttingen), 25th Research Seminar of the Managing Economic Transition network (Brighton) for valuable comments and helpful suggestions.

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Institute for East and Southeast European StudiesUniversity of RegensburgRegensburgGermany
  2. 2.Chair for International EconomicsUniversity of Duisburg-EssenEssenGermany

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