Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-12-05T07:00:54.023Z Has data issue: false hasContentIssue false

PRODUCTIVITY GAPS AND TAX POLICIES UNDER ASYMMETRIC TRADE

Published online by Cambridge University Press:  09 September 2016

Lucas Bretschger
Affiliation:
Center of Economic Research, ETH Zürich
Simone Valente*
Affiliation:
School of Economics, University of East Anglia
*
Address correspondence to: Simone Valente, School of Economics, ARTS 3.50, University of East Anglia, NR4 7TJ Norwich, UK; e-mail: s.valente@uea.ac.uk.

Abstract

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.

Type
Articles
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We owe special thanks to Emiliya Lazarova and Julie Ing for suggestions and feedback, as well as to the Associate Editor and Referees for their constructive comments. Any remaining errors are the authors' responsibility. Detailed proofs and derivations of the analysis in this article are available online as Supplementary Material. Further results and details can be found in the original working paper (Bretschger and Valente, 2016).

References

REFERENCES

Amundsen, Eirik S. and Schöb, Ronnie (1999) Environmental taxes on exhaustible resources. European Journal of Political Economy 15, 311329.Google Scholar
Aznar-Marquez, Juana and Ruiz-Tamarit, José Ramón (2005) Renewable natural resources and endogenous growth. Macroeconomic Dynamics 9, 170197.Google Scholar
Barro, Robert J. and Sala-i-Martin, Xavier (2004) Economic Growth. 2nd ed. Cambridge, MA: MIT Press.Google Scholar
Bergstrom, Theodore C. (1982) On capturing oil rents with a national excise tax. American Economic Review 72, 194201.Google Scholar
Brander, James and Djajic, Slobodan (1983) Rent-extracting tariffs and the management of exhaustible resources. Canadian Journal of Economics 16, 288298.Google Scholar
Bretschger, Lucas and Valente, Simone (2012) Endogenous growth, asymmetric trade and resource dependence. Journal of Environmental Economics & Management 64, 301311.Google Scholar
Bretschger, Lucas and Valente, Simone (2016) Productivity Gaps under Asymmetric Trade. CER-ETH Center of Economic Research Working Paper 16/239, ETH Zürich.Google Scholar
Daubanes, Julien and Grimaud, André (2010) Taxation of a polluting non-renewable resource in the heterogeneous world. Environmental and Resource Economics 47, 567588.Google Scholar
Feenstra, Robert C. (1996) Trade and uneven growth. Journal of Development Economics 49, 229256.Google Scholar
Fudenberg, Drew and Tirole, Jean (1991) Game Theory. Cambridge, MA: MIT Press.Google Scholar
Grossman, Gene M. and Helpman, Elhanan (1990) Comparative advantage and long-run growth. American Economic Review 80, 796815.Google Scholar
Gupta, S., Clements, B., Fletcher, K. and Inchauste, G. (2002) Issues in Domestic Petroleum Pricing in Oil-Producing Countries. IMF Working Paper WP/02/140, International Monetary Fund.Google Scholar
Lederman, Daniel and Maloney, William F. (2007) Natural Resources—Neither Curse Nor Destiny. Washington, DC: The World Bank.Google Scholar
Liski, Matti and Tahvonen, Olli (2004) Can carbon tax eat OPEC's rents. Journal of Environmental Economics and Management 47, 112.Google Scholar
Metschies, Gerhard P. (2005) International Fuel Prices 2005. Eschborn: GTZ–Federal Ministry for Economic Cooperation and Development.Google Scholar
Peretto, Pietro F. (2012) Resource abundance, growth and welfare: A Schumpeterian perspective. Journal of Development Economics 97, 142155.Google Scholar
Peretto, Pietro F. and Simone, Valente S. (2011) Resources, innovation and growth in the global economy. Journal of Monetary Economics 58, 387399.Google Scholar
Rivera-Batiz, Luis A. and Romer, Paul (1991) Economic integration and endogenous growth. Quarterly Journal of Economics 106, 531555.Google Scholar
Robinson, James A., Torvik, Ragnar, and Verdier, Thierry R. (2006) Political foundations of the resource curse. Journal of Development Economics 79, 447468.Google Scholar
Rubio, Santiago J. and Escriche, Luisa (2001) Strategic pigouvian taxation, stock externalities and non-renewable resources. Journal of Public Economics 79, 297313.Google Scholar
Tornell, Aaron and Lane, Philip R. (1999) The voracity effect. American Economic Review 89, 2246.Google Scholar
Valente, Simone (2009) International status seeking, trade, and growth leadership. Canadian Journal of Economics 42, 554589.Google Scholar
Valente, Simone (2011) Endogenous growth, backstop technology adoption, and optimal jumps. Macroeconomic Dynamics 15, 293325.Google Scholar
WTO (2011). World Trade Report 2010 – Trade in Natural Resources. Geneva: WTO Publications.Google Scholar
Supplementary material: PDF

Bretschger and Valente supplementary material

Online Appendix

Download Bretschger and Valente supplementary material(PDF)
PDF 117.9 KB