The global financial crisis and the problems in peripheral EU countries resulted in increased attention to fiscal developments and their impact on borrowing costs for both public and private sector. Existing theoretical literature suggests that worsening of current and expected budget balances...

Based on the estimation of a theoretically consistent gravity equation, together with a careful computation of transportation costs across countries and industries, the Paper first provides estimates of ‘border effects’ among EU countries. The second objective is to examine the reasons for...