AGE‐DEPENDENT TAXES WITH ENDOGENOUS HUMAN CAPITAL FORMATION

We assess the gains attained by the introduction of age‐dependent labor income taxes in an overlapping generations economy where individuals live a meaningful life cycle and endogenously accumulate human capital. The model is sufficiently rich to isolate the role of general equilibrium effects, credit market imperfections, and different forms of human capital accumulation. The large welfare gains we obtain cannot be attained without age dependence, nor can they be attained with age‐dependent taxes if progressivity of labor income taxes and capital income tax rates are not suitably adjusted to profit from the complementarity of these instruments.     

The International Transmission of Tax Policies In A Dynamic World Economy*

The international transmission of tax shocks are analyzed in a two-country infinite-horizon representative agent framework. the viability of the tax regimes, arising from the arbitrage conditions characterizing equilibrium in a perfect world capital market, is emphasized. Conditions for both short-run and long-run viability are derived, and the two polar regimes of source-based and residence-based taxation are discussed. In general, the former is found more likely to satisfy the viability conditions than the latter. With equity financing, the long-run viability of residence-based taxation is likely to require the harmonization of tax and/or dividend policy. the main features of the dynamic adjustment paths following a tax increase are characterized.     

Eliminating Excessive Tariffs on Exports of Least Developed Countries

Although average OECD tariffs on imports from the least developedcountries are very low; tariffs above 15 percent (peaks) havea disproportional effect on their exports. Products subjectto tariff peaks tend to be heavily concentrated in agricultureand food products and labor-intensive sectors, such as appareland footwear. Although the least developed countries benefitfrom preferential access, preferences tend to be smallest fortariff peak products. A major exception is the European Union,so that the recent European initiative to grant full duty-freeand quota-free access for the least developed countries (theso-called Everything But Arms initiative) will result in onlya small increase in their exports of tariff peak items (lessthan 1 percent of total exports). However, as preferences areless significant in other major OECD countries, a more generalemulation of the European Union initiative would increase theleast developed countries' total exports of peak products byUS$2.5 billion (11 percent of total exports). Although almosthalf of this increase is at the expense of other developingcountry exports, this represents less than 0.05 percent of theirtotal exports. This trade diversion can be avoided by reducingtariff peaks to a uniform 5 percent applied on a nondiscriminatorybasis. However, such a reform would imply no gains for the leastdeveloped countries, suggesting that the globally welfare-superiorpolicy of nondiscriminatory elimination of tariff peaks shouldbe complemented by greater direct assistance to poor countries.     

Lobbying, Counterlobbying, and the Structure of Tariff Protection in Poor and Rich Countries

A political economy model of protection is used to determineendogenously the intersectoral patterns of protection. Threepropositions are derived that are consistent with the stylizedpatterns of tariff protection in rich and poor countries: Nominalprotection rates escalate with the degree of processing, protectionis higher on average in poor countries, and rich countries protectagriculture relatively more than they protect manufacturing,whereas poor countries do the reverse. Numerical simulationsfor archetypal rich and poor economies confirm that the endogenouslydetermined structure of protection is broadly consistent withobserved patterns of protection.     

Agricultural Tariffs or Subsidies: Which Are More Important for Developing Economies?

This article assesses the impact of the world price–depressingeffect of agricultural subsidies and border protection in OECDcountries on developing economies' exports, imports, and welfare.Developing economy exporters are likely to benefit from reductionsin such subsidies and trade barriers, whereas net importersmay lose as world prices rise. A simple partial equilibriummodel of global trade in commodities that benefit from domesticsupport or export subsidies is developed to estimate the relevantelasticities. Simulation results suggest that a 50 percent reductionin border protection will have a much larger positive impacton developing economies' exports and welfare than a 50 percentreduction in agricultural subsidies. Although there is significantheterogeneity across developing economies, the results suggestthat efforts in the Doha Round of negotiations should be directed at substantially reducing border protection.     

On `indirect' trade-related R&D spillovers

An influential literature argues that trade promotes knowledge flows and technology transmission between trading partners. This literature focuses on `direct' research and development (R&D) spillovers which are related to the levels of R&D produced by the trading partners. In this paper, we argue that `indirect' trade-related R&D spillovers also take place between countries, even if they do not trade with each other. These `indirect' spillovers are associated with available rather than with produced levels of R&D. Our empirical results suggest that these `indirect' trade-related spillovers are at least as important as the `direct' ones, and strengthen the view that trade does matter for the international transmission of R&D. They also suggest that, due to the existence of these `indirect' effects, bilateral trade patterns are relatively less important determinants of the level of foreign R&D spillovers acquired through trade.     

Short-cuts in issuance decisions and subsequent small firm performance

This paper examines the subsequent change in performance characteristics of companies that make security issuance choices consistent with “following the herd.” It extends the literature on decision heuristics (i.e., decision short-cuts) by exploring the outcome of mimicking behavior. Results suggest that firms that issue equity in an environment consistent with mimicking are associated with subsequent increased risk of bankruptcy relative to their non-mimicking counterparts. Moreover, the results also suggest that these mimicking actions are not associated with subsequent changes in profitability. This gives support to the argument that decision short-cuts produce suboptimal results. Moreover, the effect is concentrated in very small (i.e., micro-cap) companies, but not present for companies in larger size categories. Similar patterns for debt issuers who mimic competitors are not observed, which may reflect the greater scrutiny imposed by lenders and debt under-writers with regard to debt issuances.

Regional Integration and Lobbying for Tariffs Against Nonmembers

We study the impact of regional trading arrangements (RIAs) on tariff policy toward nonmembers in a three-good, three-country political economy model. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration can lead to rising protection against nonmember imports. Other differences between FTAs and CUs, like the extent of free-riding in a CU and any component of a CU's tariff designed to improve the members' terms of trade, are not explicitly accounted for. Nevertheless, the results suggest that FTAs are likely to welfare dominate CUs.     

Unrestricted Market Access for Sub-Saharan Africa: How Much Is It Worth and Who Pays?

Initiatives to improve market access for the poorest countrieshave recently been announced by the EU, Japan and the USA. Thispaper assesses the impact of these initiatives and others thatmight be taken for a subset of 37 Sub-Saharan African countries(SSA-37). We find that fully unrestricted access to all theQUAD countries (EU, USA, Canada and Japan) would produce substantialgains for SSA-37, leading to a 14% increase in non-oil exports($2.5 billion) and boosting real incomes in SSA-37 by about1%. Most of these gains would come from preferential accessto the highly protected Japanese and European agricultural markets.The smallness of SSA-37 ensures that the costs of trade diversionfor the QUAD, other developing countries and the world as awhole are negligible.