Welfare Effects versus Income Effects of Poland's Integration into the European Union

This paper presents a dynamic Computable General Equilibrium (CGE) model for Poland's integration into the European Union that allows for quantification of the income and welfare effects stemming from<p> i) tariff reduction,<p> ii) border-cost reduction, <p> iii) reduction of the technical barriers to trade, <p> iv) increased net EU-transfers from Brussels. <p> For all channels, steady state national income increases substantially compared with the reference scenario (status quo). However, the welfare effects are surprisingly low. The intertemporal findings show the importance of renouncing consumption today in order to build up the capital stock necessary to achieve higher output and higher consumption in the future. Large discrepancies between welfare and income effects illustrate the importance of the recent discussion on welfare versus income gains from trade liberalization, and stress the necessity of an overall welfare measure in analyzing effects of regional integration.