Economic Geography and the Fiscal Effects of Regional Integration,

In models of economic geography, plant-level scale economies and trade costs create incentives for spatial agglomeration of production into a manufacturing core and agricultural periphery, creating regional income differentials. We examine tax competition between national governments to influence the location of manufacturing activity. Labour is imperfectly mobile and governments impose redistributive taxes. Regional integration is modeled as either increased labour mobility or lower trade costs. We show that either type of integration may result in a decrease in the intensity of tax competition, and thus higher equilibrium taxes. Moreover, economic integration must increase taxes when the forces of agglomeration are the strongest.economic integration; economic geography; factor mobility; international trade; tax competition

Delegation versus Communication in the Organization of Government

When a government creates an agency to gather information relevant to policymaking, it faces two critical organizational questions: whether the agency should be given authority to decide on policy or merely supply advice, and what should the policy goals of the agency be. Existing literature on the first question is unable to address the second, because the question of authority becomes moot if the government can simply replicate its preferences within the agency. In contrast, this paper examines both questions within a model of policymaking under time inconsistency, a setting in which the government has a well-known incentive to create an agency with preferences that differ from its own. Thus, our framework permits a meaningful analysis of delegation versus communication with an endogenously chosen agent. The first main finding of the paper is that the government can do equally well with a strategic choice of agent, from which it solicits advice, instead of delegating authority, as long as the time inconsistency problem is not too severe. The second main finding is that the government may strictly prefer seeking advice to delegating authority if there is prior uncertainty with respect to what is the optimal policy.Political Economy, Delegation, Communication, Organizational Design, Time Inconsistency.

Do Terms-of-Trade Effects Matter for Trade Agreements? Evidence from WTO Countries

In the literature on the economics of international trade institutions, a key question is whether or not terms-of-trade effects drive international trade agreements. Recent empirical work addressing terms-of-trade effects has been restricted to non-WTO countries or accession countries, which differ markedly from existing WTO members and account for only a tiny fraction of world trade. This paper investigates whether MFN tariffs set by existing WTO members in the Uruguay round are consistent with the terms-of-trade hypothesis. We present a model of multilateral trade negotia-tions featuring free riding on MFN that leads the resulting tariff schedule to display terms-of-trade effects. Specifically, the model predicts that the level of the importer’s tariff resulting from negotia-tions should be negatively related to the product of exporter concentration, as measured by a Her-findahl-Hirschman index (sum of squared export shares), and the importer’s market power, as measured by the inverse elasticity of export supply, on a product-by-product basis. We test this hy-pothesis using data on tariffs, trade and production across more than 30 WTO countries and find strong support. We estimate that the internalization of terms of trade effects through WTO negotia-tions has lowered the average tariff of these countries by about 20% compared to its non-cooperative level.

Market Collusion and the Politics of Protection

This paper investigates the relationship between trade and competition policy within a model where market collusion and protectionist lobbying are themselves related. Collusion and lobbying are modeled as joint products of the same collective effort of firms. In equilibrium, firms cannot achieve greater cooperation in one dimension without reducing it in the other. A trade agreement that limits the effectiveness of lobbying may cause firms to increase market collusion, thereby increasing the domestic price. Thus international trade agreements may run counter to the goals of competition policy. On the other side, a more restrictive competition policy is shown to either reduce the domestic price or reduce import protection. Thus competition policy tends to promote trade policy goals. The reason is that restrictive competition policy undermines collusion at the source -- it decreases the per-firm benefit to collusion relative to the gains from deviating -- reducing firm cooperation in both dimensions

Tariffs And The Adoption Of Clean Technology

This paper examines the effect of import tariffs on the decision of a foreign monopolist to adopt "clean" technology -- technology that reduces the flow of a negative cross-border externality per unit of output. The clean technology is assumed to increase the marginal cost of production relative to the dirty technology, but the extent of the increase may be known only to the firm. Under complete information, we show that, despite its protectionist motivation, the importing country's optimal tariff induces the firm to adopt the clean technology if and only if it is globally efficient to do so. Under incomplete information, this efficiency property is disrupted. If the optimal tariff is decreasing in the marginal cost, then it leads the firm to bias its choice in favor of dirty technology