Carl Gaigné

Globalization, Asymmetric Tax Competition, and Fiscal Equalization

Trade integration and the increasing mobility of firms have raised the need for international coordination in corporate tax. In this paper, we study the ability of fiscal equalization to avoid the misallocation of capital across asymmetric countries arising from tax competition. Such a reform respects the principle according to which the tax decision is entirely left up to the nation and links nations engaged in strategic tax policy by transfers. We use a model of trade and location where firms produce under imperfect competition. Our analysis suggests that falling trade costs increase the distortion created by tax competition in the international allocation of production. However, we show that fiscal equalization based on differences in tax revenues or tax base can implement a more efficient tax wedge and spatial allocation of the tax base.

Does Regulation of Manure Land Application Work Against Agglomeration Economies? Theory and Evidence from the French Hog Sector

The well-known increase in the geographical concentration of hog production suggests the presence of agglomeration economies related to spatial spillovers and inter-dependencies among industries. In this paper, we examine whether the restrictions on land application of manure may weaken productivity gains arising from the agglomeration process. We develop a model of production showing the ambiguous spatial effect of land availability and the restriction on the manure application rate. Indeed, while the regulation of manure application triggers dispersion when manure is applied to land as a crop nutrient, it also prompts farmer to adopt manure treatment that favors agglomeration of hog production. Estimations of a reduced form of the spatial model with a spatial HAC procedure applied to data for French hog production for 1988 and 2000 confirm the ambiguous effect of land limitations induced by the restrictions on manure application. It does not prevent spatial concentration of hog production, and even boosts the role played by spatial spillovers in the agglomeration process.

The effects of labour unions on international capital tax competition

We analyze the impact of labour market rigidities on tax competition between two imperfectly integrated countries. Following a shift from a competitive to a unionized labour market in both countries, the capital tax can be adjusted upward in the country with the less rigid labour market, whereas the capital tax is always adjusted downward in the other country. Moreover, by reducing the labour cost differential between countries, trade liberalization gives rise to tax and welfare convergences. Finally, when a country adopts a flexible labour market, the unionized country may attract the majority of capital.

Aging Nations and the Future of Cities

We investigate whether an aging population may challenge the supremacy of large working cities. To this end, we develop an economic geography model with two types of individuals (workers and retirees) and two sectors (local services and manufacturing). Workers produce and consume; the elderly consume only. As a result, the mobility decision of workers is driven by both the wage gap and the cost-of-living gap, unlike the elderly who react to the differences in the cost of living only. We show that the return of pre-industrial urban system dominated by rentier cities does not seem to be on the agenda. Quite the opposite, the future of large working cities is still bright, the reason being that todays urban costs act as a strong force that prevents a large share of local services and manufacturing firms from following the rentiers in the elderly cities, while the supply of differentiated b2c services impede their complete separation.

The Effects of Labour Unions on International Capital Tax Competition (L’Effet Des Syndicats Sur La Concurrence Fiscale Internationale)

We analyze the impact of labour market rigidities on tax competition between two imperfectly integrated countries. Following a shift from a competitive to a unionized labour market in both countries, the capital tax can be adjusted upward in the country with the less rigid labour market, whereas the capital tax is always adjusted downward in the other country. Moreover, by reducing the labour cost differential between countries, trade liberalization gives rise to tax and welfare convergences. Finally, when a country adopts a flexible labour market, the unionized country may attract the majority of capital.

Regional Production Adjustment to Import Competition: Evidence from the French Agro-Industry

This paper aims at evaluating the impact of increasing imports on the reallocation of agrifood production across regions within countries. From French data for the period 1995-2002, we show that regional agri-food production adjusts differently to increasing imports according to the region where the agri-food firms are located. More precisely, even though proximity to consumers significantly shapes the spatial distribution of agri-food production, an increase in agri-food imports does not make regions with a high demand more attractive but makes low-wage regions more attractive. In addition, an increase in imports of agricultural products processed by agri-food firms leads to the reallocation of agri-food production from regions with good access to agricultural products towards those withlimited access.

Quality Standards, Industry Structure, and Welfare in a Global Economy

We study the impact that mimimum quality standards have on industry structure, trade, and welfare when firms can develop their own private standard with a higher quality than the public standard. We introduce vertical differentiation in a firm-based trade model in which firms differ in terms of their productivity and non-cooperatively select the quality and price of their product. A higher public standard increases prices set by constrained and unconstrained firms, but the effect on firms’ output is generally ambiguous for both types of firms. The most productive firms raise their private standard and enjoy higher profits at the expense of less productive firms. A public standard can increase welfare, especially when there is a high concentration of low productivity domestic firms because of a better allocation of resources.

Agricultural Prices, Selection, and the Evolution of Food Industry

We present a model that explains the relationship between low input prices, high exit rates, and industrial concentration. We argue that falling input prices force less productive firms to exit the market, and lead to the expansion of more efficient incumbents at the expense of less productive producers. Our model helps reconcile some well-established empirical results regarding the food processing industry. Indeed, agricultural prices fell between the early 1900s and 2006, and over the same period there was a trend towards higher concentration in the food industry, with an increase in average productivity.

Trade Costs Versus Urban Costs: Do Jobs Move to the Suburbs or to the Sticks ?

We analyze how the interplay between urban costs, wage wedges, and trade costs may affect the interregional location of firms as well as the intraurban location, within the central business district or in a secondary employment center (SEC) of the selected region. In this way, we investigate, on the one hand, how trade may affect the internal structure of cities and, on the other hand, how decentralizing the production and consumption of goods to subcenters changes the intensity of trade by allowing large metropolitan areas to maintain their predominance. We show that, despite low commuting costs, SECs may emerge when the urban population is large and communication technologies are efficient, two features that seem to characterize modern economies. Moreover, when trade costs fall from high levels, the economy moves gradually from dispersion to agglomeration, favoring the formation of SECs. However, in an integrating world, the center of a small monocentric city could be more attractive than subcenters of large polycentric cities. Nevertheless, the core retains its predominance through the relative growth of its main center, which occurs at the expense of its subcenters.

Vertical Ownership and Export Performance: Firm-Level Evidence from the Food Industry

&NA; This article examines whether ownership arrangements between food firms and intermediaries improve the export performance of the former. We develop a theoretical model of trade with vertically‐linked industries whereby upstream manufacturers compete in export markets and may decide to acquire ownership stakes in an intermediary. The model highlights how more productive firms succeed in managing the double marginalization problem and in reducing the costs of exporting through forward acquisition. The predictions from the model are tested using firm‐level data on the French food industry. The results demonstrate that acquiring an intermediary lowers prices and distribution costs, and reveal that the benefits from forward acquisitions can be quite large. Conversely, we find that vertical ownership creates a market externality among manufacturers due to the reallocation of market shares from small firms to large firms, thereby forcing some low‐productivity firms to exit foreign markets.