Optimal International Tax Coordination and Economic Integration: A Game-Theoretic Framework

The scope for optimal international coordination of indirect taxes is examined in a macroeconomic game-theoretic framework which encompasses two regionally integrated economies, which have a single goods market. In each country there are tax-financed non-tradeable public goods, while labor is immobile internationally. The analysis of both fixed and flexible wage versions of the model identifies a much wider spectrum of cooperative tax policies than has been previously recognized. In relation to non-cooperative Nash equilibria, cooperative Pareto-improving tax changes can entail not only uni-directional increases or decreases in rates, but also asymmetric directional changes. In particular, the constellation of such welfare improving tax changes is shown to depend critically on the countries'' relative preferences for private and public goods consumption, savings, as well as demand elasticity values relative to unit elasticity.econometrics;

Efficiency gains and mergers

In the theoretical literature, strong arguments have been provided in support of the efficiency defense in antitrust merger policy. One of the most often cited results is due to Williamson (1968) that shows how relatively small reduction in cost could offset the deadweight loss of a large price increase. Furthermore, Salant et al. (1983) demonstrate that (not for monopoly) mergers are unprofitable absent efficiency gains. The general result, drawn in a Cournot framework by Farrell and Shapiro (1990), is that (not too large) mergers that are profitable are always welfare improving. In the present work we challenge the conclusions of this literature in two aspects. First, we show that Williamson's results underestimate the welfare loss due to a price increase and overestimate the effect of efficiency gains. Then, we prove that the conditions for welfare improving mergers defined by Farrell and Shapiro (1990) hold true only when consumers are adversely affected. This seems an argument to disregard their policy prescriptions when antitrust authorities are more "consumers-oriented". In this respect, we provide a necessary and sufficient condition for a consumer surplus improving merger: in a two firm merger, efficiency gains must be larger than the pre-merger average markup

Regionalism

"In this paper, we review the debate on "new regionalism," focusing on the tools used to evaluate regional trade agreements (RTAs). We find that much analysis uses tools from old trade theory in the Viner-Meade tradition, focusing on trade creation, trade diversion, and terms-of-trade effects. These tools are adequate for the analysis of the effects of removing commodity trade barriers ("shallow" integration), but the comfortable Viner-Meade framework misses many of the impacts associated with new regionalism, which typically involves "deep integration," often between developing and developed countries. A framework for analyzing new regionalism should include dynamic changes such as trade-productivity links and endogenous growth theory, international factor mobility, the role of imperfect competition, rent seeking behavior, and political-economy considerations such as potential conflicts between regionalism and multilateralism. Agriculture poses problems for new regionalism because of high tariffs, the use of domestic subsidies and entrenched special interest groups, but the role of trade liberalization on its productivity is often overlooked. For developing countries, a crucial issue is whether and how regionalism can be part of a successful development strategy. While "new trade theory" is concerned with a number of the issues relevant to new regionalism, and is providing new tools, the work is eclectic and is far from providing a unified framework for empirical analysis of new regionalism. Both theoretical and empirical research is needed to improve the reach and scope of new trade theory applied to issues of new regionalism." Authors' AbstractRegionalism. ,Regional trade agreements ,Terms of trade. ,

Monetary Policy Under Alterative Asset Market Structures: the Case of a Small Open Economy

Can the structure of asset markets change the way monetary policy should be conducted? Following a linear-quadratic approach, the present paper addresses this question in a New Keynesian small open economy framework. Our results reveal that the configuration of asset markets significantly affects optimal monetary policy and the performance of standard policy rules. In particular, when comparing complete and incomplete markets, the ranking of policy rules is entirely reversed, and so are the policy prescriptions regarding the optimal level of exchange rate volatility.Welfare, Optimal Monetary Policy, Asset Markets, Small Open Economy

Quantitative macroeconomics with heterogeneous households

Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the “standard” incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals’ key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?Macroeconomics ; Insurance

Bridging the Tax-Expenditure Gap: Green Taxes and the Marginal Cost of Funds

The marginal cost of public funds is usually seen as a number greater than one, reflecting the efficiency cost of distortionary taxes. But economic intuition suggests that since green taxes are efficiency-enhancing the MCF with such taxes will be less than one. The paper demonstrates that this intuition is not necessarily true, even when a green tax is the sole source of funds. The analysis also considers the MCF with a proportional income tax, given the presence of green taxes. It compares the optimization approach to the MCF with that of a balanced budget reform and shows that they lead to equivalent results.

Good Wetland Agricultural Practices

Within the Guiding Agriculture Wetland Interaction (GAWI) project the Driver!Pressure!State! Impact!Response (DPSIR) approach has been adopted to describe and analyse agriculture!wetland interactions. The DPSIR approach provides a consistent framework to analyse the complex causal chain among drivers, pressures, state and impacts, and facilitates the targeted identification of response strategies aimed at improving the sustainability of wetlands