A Theory of Economic Disintegration

114 Pages Posted: 24 Nov 2020

See all articles by Eckhard Janeba

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Karl Schulz

University of Mannheim

Date Written: 2020

Abstract

We develop a theory of economic disintegration with both endogenously formed tax and trade policies. We show very generally that, contrary to conventional wisdom, a country’s disintegration from an integrated area leads to a deeper integration inside the area. Similarly, the departure of a country from a customs union lowers tariffs world-wide. Moreover, we introduce international firm mobility and non-cooperative business tax policies into the multi-country, multi-sector general equilibrium trade model of Melitz and Ottaviano (2008). We address the model-inherent dimensions of economic disintegration, such as tariffs, non-tariff barriers, the harmonization of production standards and regulations, business frictions, as well as household migration and analyze their effects on the domestic tax policies of asymmetric countries.

JEL Classification: F130, F150, F220, F530, H250, H730

Suggested Citation

Janeba, Eckhard and Schulz, Karl, A Theory of Economic Disintegration (2020). CESifo Working Paper No. 8706, Available at SSRN: https://ssrn.com/abstract=3736488

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Karl Schulz

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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