Productivity Gaps and Tax Policies Under Asymmetric Trade

Bretschger, Lucas and Valente, Simone (2018) Productivity Gaps and Tax Policies Under Asymmetric Trade. Macroeconomic Dynamics, 22 (6). pp. 1391-1427. ISSN 1365-1005

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    We build a two-country model of endogenous growth to study the welfare effects of taxes on tradable primary inputs when countries engage in asymmetric trade. We obtain explicit links between persistent gaps in productivity growth and the incentives of resource exporting (importing) countries to subsidize (tax) domestic resource use. The exporters' incentive to subsidize hinges on slower productivity growth and is disconnected from the importers' incentive to tax resource inflows -- i.e., rent extraction. Moreover, faster productivity growth exacerbates the importers' incentive to tax, beyond the rent-extraction motive. In a strategic tax game, the only equilibrium is of Stackelberg type and features, for a wide range of parameter values, positive exporters' subsidies and positive importers' taxes at the same time.

    Item Type: Article
    Uncontrolled Keywords: productivity gaps,tax policy, international trade,endogenous growth
    Faculty \ School: Faculty of Social Sciences > School of Economics
    Depositing User: Pure Connector
    Date Deposited: 31 May 2016 13:00
    Last Modified: 09 Apr 2019 11:13
    DOI: 10.1017/S1365100516000729

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