Eastern Enlargement to the EU: Economic Costs and Benefits for the Present Member States

The study aims at a detailed evaluation of the consequences of an eastern enlargement of the European Union on the two economies of Austria and Germany, focusing in particular on the trade liberalization effects and the budgetary implications, and using dynamic applied general equilibrium (AGE) models. The ultimate goal is to deliver a welfare judgement that duly takes into account - the lower transaction costs involved in east-west trade and efficientcy efficiency effects of extending the customs union, including the attendant growht effects, as well as - the fact that incumbent EU countries in all likelihood wil suffer from increased net contribution payments to the Union as a result of extending EU policies to poorer and more agricultural economies of new members. We treat the tariff reductions agreed upon the Europe agreements as an integral part of EU enlargement although they are already in effect and therefore not strictly part of the enlargement negotiations. The single market status is modeled as a reduction of real trade costs, following an established tradition in the applied general equilibrium literature. In addition to static welfare effects, we intend to highlight growth effects which we deem important not only in terms of welfare, but also in terms of the implications of enlargement on national budgets.