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

We present a theoretical perspective on the principal nature of potential costs and benefits that a present EU member will face upon an Eastern enlargement of the EU and then apply a dynamic equilibrium model of the Austrian economy for a rough quantification of these effects within a unified framework. In addressing budgetary costs of EU enlargement in addition to the tariff as well as nontariff trade barriers, we arrive at important conclusions: 1) Overall, extending EU membership to Eastern applicants is more than worth its price for Austria. The (dynamic) gains from integration clearly outweigh the budgetary costs. 2) Somewhat surprisingly, the wage spread between skilled and unskilled labor is narrowed rather than widened. 3) Significant sectoral and intergeneratioal redistribution, however, may render EU enlargement difficult on political grounds, whereby the agricultural sector and young generations are at the losing end.