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Abstract

Australia faces a very serious trade problem. A large improvement in our balance of trade is required simply to stop our international debt from rising above levels which are already considered too high. In this paper a range of economic policies are examined. Each generate a $A1 billion improvement (in 1985-86 prices) in the balance of trade after about 2 years. The following economic shocks are examined: an increase in world agricultural prices; a cut in real wages; a reduction in protection for manufacturing industries; a change in the tax mix in favour of indirect taxation; and a contraction in real domestic absorption. The impacts of these shocks are derived from simulations with ORANI, a computable general equilibrium (hereafter CGE) model of the Australian economy. The effects of these shocks on the agricultural sector are studied in detail.

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