Wage competition with international capital mobility

This paper analyzes wage competition between national trade unions caused by the international mobility of capital. Perfect capital mobility leads to a Bertrand result for the outcome of wage competition: A pure strategy equilibrium implies full employment in all countries. It is shown that such an equilibrium exists for a sufficiently large number of countries. As extensions of the basic model, decreasing returns to scale and capital adjustment costs are introduced.capital mobility,trade unions

On the effects of factor mobility on local infrastructure policy and rent-seeking

This paper deals with the influence of factor mobility on local infrastructure policy and rent-seeking activities of local interest groups. It employs a model where households differ with respect to their endowment with the immobile factor land. Local governments decide about the level of productive infrastructure in their jurisdiction. According to their land endowment, different households benefit to a different degree from the infrastructure. This redistribution effect of local infrastructure gives households an incentive for rent-seeking: Landabundant households seek to influence their government to increase the level of infrastructure whereas land-poor households seek to influence their government to reduce the infrastructure level. As this paper shows, factor mobility and fiscal competition between local governments lead to increasing rent-seeking expenditures for a broad class of cases.Factor Mobility,Fiscal Competition,Rent-Seeking

Capital mobility, tax competition, and lobbying for redistributive capital taxation

This paper analyzes the impact of international capital mobility on redistributive capital taxation and on lobbying activities by interest groups. It employs a model where different capital endowments lead to a conflict between households concerning their most preferred capital tax rate. Three main results are derived: First, redistributive source based capital taxes or subsidies decline as international tax competition intensifies. Second, lobbying activities of certain interest groups may explain international differences in the capital tax rate. Third, capital mobility may lead to declining lobbying activities of interest groups and thus may be welfare increasing for all households.Tax competition,interest groups,redistribution

Aging, Factor Returns, and Immigration Policy

In this note we analyze how aging affects immigration policy. We set up a dynamic political-economy model of representative democracy in which the government of the destination country sets the immigration level to maximize aggregate welfare of the constituency. Aging, i.e. a decline in the growth rate of the native population, has an expansionary effect on immigration. This immigration effect may even overcompensate the initial decline in population growth such that the total labor force grows more strongly and the capital stock per worker declines. We also compare our results to the social planner allocation and to the median-voter equilibrium.Demographic change, political economy, immigration policy

Trade and Variety in a Model of Endogenous Product Differentiation

This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation.Product differentiation, multi-product firms, international trade.

Enlargement versus deepening: the trade-off facing economic unions.

This paper analyzes the relationship between the size of an economic union and the degree of policy centralization. We consider a political economy setting in which elected representatives bargain over the degree of centralization within the union. In our model strategic delegation affects the identity of the representatives and hence the equilibrium policy outcome. We show that the relationship between the size of the union and centralization may be non-monotonic: Up to a certain size enlargement leads to deeper integration, whereas beyond that size further enlargement implies less centralization. We also show that freezing the level of centralization and associate memberships can mitigate the trade-off.

Enlargement versus Deepening: The Trade-off Facing Economic Unions

This paper analyzes the relationship between the size of an economic union and the degree of policy centralization. We consider a political economy setting in which elected representatives bargain about the degree of centralization within the union. In our model strategic delegation affects the identity of the representatives and hence the equilibrium policy outcome. We show that the relationship between the size of the union and centralization may be non-monotonic: Up to a certain size of the union enlargement leads to deeper integration,whereas beyond that size further enlargement implies less centralization. We also show that freezing the level of centralization or allowing an associated membership can mitigate the trade-off.fiscal federalism, policy centralization, political economy

Mode of International Investment and Endogenous Risk of Expropriation

In this paper, we develop a politico-economic model to analyze the relationship between the mode of international investment and institutional quality in a non-democratic capital importing country. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South and transfer their capital within integrated multinational rms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. In a joint venture, the domestic asset owner bears the risk of expropriation, whereas in an integrated rm, this risk affects the foreign investor. This effect lowers the incentives for specific investments in an integrated firm and distorts the decision between joint ventures and integrated production. By setting the institutional framework in the host country, the elite in uences the risk of expropriation. We determine the equilibrium risk of expropriation in this framework and the resulting pattern of international production. We also analyze as to how globalization, which is re ected in a decline in investment costs, in fluences institutional quality.Foreign direct investment, joint venture, property rights, expropriation

Mode of International Investment and Endogenous Risk of Expropriation

In this paper, we develop a politico-economic model to analyze the relationship between the mode of international investment and institutional quality in a non-democratic capital importing country. Foreign investors from a capital-rich North can either purchase productive assets in a capital-poor South and transfer their capital within integrated multinational firms or they can form joint ventures with local asset owners. The South is ruled by an autocratic elite that may use its political power to expropriate productive assets. In a joint venture, the domestic asset owner bears the risk of expropriation, whereas in an integrated firm, this risk affects the foreign investor. This effect lowers the incentives for specific investments in an integrated firm and distorts the decision between joint ventures and integrated production. By setting the institutional framework in the host country, the elite influences the risk of expropriation. We determine the equilibrium risk of expropriation in this framework and the resulting pattern of international production. We also analyze as to how globalization, which is reflected in a decline in investment costs, influences institutional quality.foreign direct investment, joint venture, property rights, expropriation