Government Spending on Public Goods, International Factor Mobility and Trade

Government Spending on Public Goods, International Factor Mobility and Trade

This paper examines the trade patterns and the direction of factor movements generated by an international difference in government spending on public goods. The model consists of one final good, one intermediate good, one public good, and two primary factors of production; capital and labour The public good is supplied by the government, and the budget constraint of the government is satisfied through an adjustment of the income tax rate. Two cases have been examined in this paper The first case is that the final good and the intermediate good are internationally traded without international factor movements. The second case is that the final good is internationally traded and one of the primary factors of production is internationally mobile.