A Simple, Analytically Solvable, Chamberlinian Agglomeration Model

This paper presents a simple Chamberlinian agglomeration model which, like the canonical core-periphery (CP) model, contains two agglomerative forces. However, in contrast to that model, the present model is analytically solvable. Moreover, the present model exhibits a 'supercritical pitchfork bifurcation' rather than the 'subcritical pitchfork bifurcation' of the CP model. This may be a better description for some agglomerative processes than the 'catastrophic' emergence of complete agglomeration predicted by the CP model.Economic Geography, Agglomeration, Human Capital Mobility

Trade, Technology and Labour Markets: Empirical Controversies in the Light of the Jones Model

The deterioration of the income and employment position of unskilled workers in the OECD since the 1980s is a well-documented fact. The debate about the causes of this development is dominated by two competing hypotheses, "North-South Trade" ("globalisation") and technological progress. Several empirical methodologies have been used to identify and quantify the importance of these two explanations: factor content analyses, consistency checks, regression analyses and numerical methods. However, no consensus has been achieved so far and there is considerable methodological controversy. This paper uses Jones's (1965) exposition of the standard trade model as analytical backbone to identify and settle the sources of disagreement, to provide a synthesis of existing results, to derive new insights, and to provide a comprehensive assessment of the aforementioned empirical methodologies.North-South Trade, Technology, Wage Inequality, Unemployment

Market structure and the taxation of international trade

The paper compares non-cooperative commodity taxation under the destination and origin principles under a variety of different assumptions about market structure. We consider a model of international duopoly with either quantity or price competition of firms and either segmented or integrated markets, and a monopolistic competition model with mobile firms. In each setting the international spillovers of tax policy are isolated and evaluated at the Pareto efficient tax rate. The sign of the net spillover, and thus the direction that commodity tax competition will take, depends critically on whether lump-sum taxes are available or commodity taxes must be used to finance the government budget

Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries

This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have negative productivity and welfare effects on the trading partner. Second, symmetric trade liberalization is immiserizing for a trading partner whose business conditions are inferior. Third, there are gains from trade even for a country whose monopolistically competitive sector with heterogeneous firms is wiped out by the switch from autarky to trade.firm heterogeneity, welfare, trade policies, industrial policies, business conditions

International Commodity Taxation under Monopolistic Competition

We analyze non-cooperative commodity taxation in a two-country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption-based taxation, these fiscal externalities exactly offset each other and the non-cooperative tax equilibrium is Pareto efficient. With production-based taxation, however, there are additional externalities on the foreign tax base and the foreign price level which lead non-cooperative tax rates to exceed their Pareto efficient levels.tax competition, market imperfections, international trade

Market Structure and the Taxation of International Trade

The paper compares non-cooperative commodity taxation under the destination and origin principles under a variety of different assumptions about market structure. We consider a model of international duopoly with either quantity or price competition of firms and either segmented or integrated markets, and a monopolistic competition model with mobile firms. In each setting the international spillovers of tax policy are isolated and evaluated at the Pareto efficient tax rate. The sign of the net spillover, and thus the direction that commodity tax competition will take, depends critically on whether lump-sum taxes are available or commodity taxes must be used to finance the government budget.tax competition, market imperfections, international trade

Agglomeration and Tax Competition

Tax competition for a mobile factor is different in "new economic geography settings" compared to standard tax competition models. The agglomeration rent which accrues to the mobile factor in the core region can be taxed. Moreover, a tax differential between the core and the periphery can be maintained. The present paper reexamines this issue in a setting which, in addition to the core-periphery equilibria, exhibits stable equilibria with partial agglomeration. We show that a tax differential may arise as an equilibrium of the tax game even when there is only partial agglomeration and the mobile factor does not derive an agglomeration rent.Economic geography; Agglomeration; Tax competition

Market Structure and the Taxation of International Trade

The paper compares non-cooperative commodity taxation under the destination and origin principles under a variety of different assumptions about market structure. We consider a model of international duopoly with either quantity or price competition of firms and either segmented or integrated markets, and a monopolistic competition model with mobile firms. In each setting the international spillovers of tax policy are isolated and evaluated at the Pareto efficient tax rate. The sign of the net spillover, and thus the direction that commodity tax com- petition will take, depends critically on whether lump-sum taxes are available or commodity taxes must be used to finance the government budget.tax competition, market imperfections, international trade

International Commodity Taxation Under Monopolistic Competition

We analyze non-cooperative commodity taxation in a symmetrictwo-country trade model characterized by monopolisticcompetition and international firm and capital mobility. In thissetting, taxes in one country affect foreign welfare through therelocation of mobile firms and through changes in the rentsaccruing to capital owners. With consumption-based taxation,these fiscal externalities exactly offset each other and the non-cooperativetax equilibrium is Pareto efficient. With production-basedtaxation, however, there is an additional externality on theforeign price level which leads non-cooperative tax rates toexceed their Pareto efficient levels.tax competition, market imperfections, internationaltrade

Subsidizing Firm Entry in Open Economies

Entrepreneurs who decide to enter an industry are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy. What is not well understood is how international trade affects the government incentive to impact on entry costs, and how entry subsidies can be used strategically in open economies. We present a general equilibrium model of monopolistic competition with two (potentially) asymmetric countries and heterogeneous firms where government subsidizes entry of domestic entrepreneurs. Under autarky the entry subsidy indirectly corrects for the monopoly pricing distortion. In the autarky equilibrium these subsidies trigger entry, but they eventually do not lead to more but to better firms in the market. In the open economy there is another, strategic motive for entry subsidies as the tightening of domestic market selection also affects exporting decisions for domestic and foreign firms. Our analysis shows that entry subsidies in the Nash-equilibrium are first increasing, then decreasing in the level of trade openness. This implies a U-shaped relationship between openness and effective entry costs. Merging cross-country data on entry costs with international trade openness indices we empirically confirm this theoretical prediction.firm entry, subsidies, heterogeneous firms, international trade, monopolistic competition, entry regulation, strategic trade policy