Home-Biased Demand and International Specialisation: A Test of Trade Theories

We develop and apply a discriminating criterion to distinguish the two principal paradigms of international trade theory: constant-returns perfectly competitive models on the one hand, and increasing-returns monopolistically competitive models on the other. Our criterion rests on the existence of home-biased demand. It predicts a positive relationship between countries' relative output and their relative home bias in increasing-returns sectors, and no relationship in constant-returns sectors. In implementing the test on data for OECD countries we find that industries accounting for up to two thirds of manufacturing output conform to the increasing-returns monopolistically competitive model

The Centre acknowledges financial support from The Leverhulme Trust under Programme Grant F114/BFThe Authors

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Does Tax Competition Tame the Leviathan?

We study the impact of tax competition on equilibrium taxes and welfare, focusing on the jurisdictional fragmentation of federations. In a representative-agent model of fiscal federalism, fragmentation among jurisdictions with benevolent tax-setting authorities unambiguously reduces welfare. If, however, tax-setting authorities pursue revenue maximization, fragmentation, by pushing down equilibrium tax rates, may under certain conditions increase citizen welfare. We exploit the highly decentralized and heterogeneous Swiss fiscal system as a laboratory for the estimation of these effects. While for purely direct-democratic jurisdictions (which we associate with benevolent tax setting) we find that tax rates increase in fragmentation, fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government. Our results thereby support the view that tax competition can be second-best welfare enhancing by constraining the scope for public-sector revenue maximization

Agglomeration and Growth : Cross-Country Evidence

We investigate the impact of within-country spatial concentration of economic activity on country-level growth, using cross-section OLS and dynamic panel GMM estimation. Agglomeration is measured alternatively through measures of urbanization and through indices of spatial concentration based on data for sub-national regions. Across estimation techniques, data sets and variable definitions, we find evidence that supports the "Williamson hypothesis": agglomeration boosts GDP growth only up to a certain level of economic development. The critical level is estimated at some USD 10,000, corresponding roughly to the current per-capita income level of Brazil or Bulgaria. This implies that the tradeoff between national growth and inter-regional equality may gradually lose its relevance

Verified Trust: Reciprocity, Altruism, and Noise in Trust Games

Behavioral economists have come to recognize that reciprocity, the interaction of trust and trustworthiness, is a distinct and economically relevant component of individual preferences alongside selfishness and altruism. This recognition is principally due to observed decisions in experimental "trust games". However, recent research has cast doubt on the explanatory power of trust as a determinant of those decisions, suggesting that altruism may explain much of what "looks like" trust. Moreover, empirical tests for alternative behavioral determinants can be sensitive to experimental bias due to differences in protocols and framing. Therefore, we propose discriminatory tests for altruism and trust that can be based on within-treatment and within-subject comparisons, and we control for group attributes of experimental subjects. Our results support trust (i.e. expected reciprocation) as the dominant motivation for "trust like" decisions

Inheritance flows in Switzerland, 1911–2011

We estimate the size of inheritance flows in Switzerland over a long span of data, in close analogy to the study for France by Piketty (2011). We find that inheritance flows had been growing more slowly than national income up until the 1970s, but have been outpacing income growth since. According to our central estimates, the annual flow of inheritance amounted to 13.2% of national income in 2011. The share of total wealth that is attributable to inheritance has remained relatively stable over time, fluctuating between 45% and 60%

Policy Issues in NEG Models: Established Results and Open Questions

This paper provides a non-technical overview of NEG models dealing with policy issues. Considered policy measures include alternative categories of public expenditure, international tax competition, unilateral actions of protection/liberalisation, and trade agreements. The implications of public intervention in two-region NEG models are discussed by unfolding the impact of policy measures on agglomeration/dispersion forces. Results are described in contrast with those obtained in standard non-NEG theoretical models. The high degree of abstraction limits the applicability of NEG models to real world policy issues. We discuss in some detail two extensions of NEG models to reduce this applicability gap: the cases of multi-regional frameworks and firm heterogeneity

Agglomeration, Inequality and Economic Growth (WP)

The impact of income inequality on economic growth is dependent on several factors, including the time horizon considered, the initial level of income and its initial distribution. Yet, as growth and inequality are also uneven across space, it is also pertinent to consider the effects of the geographical agglomeration of economic activity. Moreover, it would also seem pertinent to consider not just the levels of inequality and agglomeration, but also the changes they undergo -i.e., their within-country evolution- and how these two processes interact with each other. By applying different econometric specifications and by introducing different measures of agglomeration at country level -specifically, urbanization and urban concentration rates-, this study analyzes how inequality and agglomeration -both their levels and their evolution- influence economic growth in function of the country’s level of development and its initial income distribution. Our results suggest, in line with previous studies, that while high inequality levels are a limiting factor for long-run growth, increasing inequality and increasing agglomeration have the potential to enhance growth in low-income countries where income distribution remains relatively equal, but can result in congestion diseconomies in high-income countries, especially if income distribution becomes particularly unequal

The Negative Impacts of COVID-19 Containment Measures on South African Families - Overview and Recommendations

The World Health Organization (WHO) reported various pneumonia cases (‘Coronavirus Disease 2019’ [COVID-19]) on 31 December 2019 in Wuhan City, China, which has spread to many countries, including South Africa. In response to this, the President of South Africa declared a state of national disaster on 15th March 2020, followed by introducing various COVID-19 containment measures to minimize the spread of the virus. This paper examines the negative impacts that COVID-19 containment measures may have had on the family as a unit of society and furthermore provides recommendations to mitigate the impacts of these measures. It can be concluded that COVID-19 containment measures, specifically the lockdown restrictions, would yield both short-term and long-term impacts on proper family functioning. Several families in South Africa have been impacted financially due to the closure of business which led to the temporary/ permanent unemployment of some breadwinners in the families. This also has had a cascading impact on the food security of families and their ability to afford other basic necessities. Distress as a result of financial challenges or failure to provide for the family alongside spending much time locked down together as a family has also led to violence in the family. This was further exacerbated by the fact that the victims were stuck with the abusers and some could not report or find help due to the restricted movements. Furthermore, since most institutions predominantly moved learning online, results indicated that the lockdown restrictions affected the ability of some individuals especially those from poor families to access formal education during the period due to the lack of digital devices and internet facilities. In order to mitigate the impacts of the COVID-19 containment measures on the family, there is a need for collaborative efforts at intrapersonal, interpersonal, institutional, community and policy levels using the ecological framework