Eastern Enlargement of the EU: How Much is it Worth for Austria?

Abstract

For present member countries, eastern EU enlargement entails gains from integration as well as fiscal costs. The authors use a calibrated model to quantify the dynamic effects of discriminatory trade liberalization and immigration from eastern applicants. It is found that enlargement is expansionary and yields a remarkable fiscal dividend. Surprisingly, integration compresses the wage spread between skilled and unskilled labor. Overall, the (dynamic) gains from integration clearly outweigh the fiscal cost. While ambiguous a priori, enlargement is found to hold a remarkable net welfare gain for Austria.