Abstract
The paper develops a CGE macro-model for Palestine, departing in three fundamental ways from the set-up applied in earlier studies. The present framework: (i) reformulates the modelling of fiscal policy in light of context-specific elements, including the absence of a government bond market and the incomplete transfer of revenues collected by Israel for the PNA; (ii) endogenizes private capital flows; (iii) postulates a demand-driven causality structure. Various policy scenarios are then assessed, with one crucial novelty: the overall effect of further trade liberalization turns out to be slightly contractionary, due to its fiscal implications.
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