Hugo Rojas-Romagosa

The construction and interpretation of combined cross-section and time-series inequality datasets

The inequality dataset compiled in the 1990s by the World Bank and extended by the UN has been both widely used and strongly criticized. The criticisms raise questions about conclusions drawn from secondary inequality datasets in general. We develop techniques to deal with national and international comparability problems intrinsic to such datasets. The result is a new dataset of consistent inequality series, allowing us to explore problems of measurement error. In addition, the new data allow us to perform parametric non-linear estimation of Lorenz curves from grouped data. This in turn allows us to estimate the entire income distribution, computing alternative inequality indexes and poverty estimates. Finally, we have used our broadly comparable dataset to examine international patterns of inequality and poverty.

Will Corporate Tax Consolidation Improve Efficiency in the EU

The European Commission favours the introduction of a consolidated corporate tax base to overcome the distortions arising from the existing system of separate accounting. The blueprints for consolidation are simulated with the applied general equilibrium model CORTAX. We show that the benefits of a common consolidated tax base are limited due to two weaknesses. Formula apportionment, which is needed to allocate the consolidated taxable profits across jurisdictions, creates for MNEs new tax planning possibilities to exploit tax rate differentials in the European Union. In addition, it triggers tax competition as the incentives for member states to attract foreign investment by reducing their tax rates are enforced. The second weakness arises from the unlevel playing field, which is introduced if only part of the firms chooses to participate in the consolidation. The gains from consolidation can be fully grasped if it is obliged for all firms and accompanied by harmonisation of the tax rate.

Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route

One consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting East Asia with Europe. This represents a sizeable reduction in shipping distances and average transportation days, compared to the conventional Southern Sea Route. We examine the economic impact of opening this route in a multi-sector Eaton-Kortum model with intermediate linkages. We find remarkable shifts in trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic and a substantial drop in Suez traffic. Projected shifts in trade also imply substantial pressure on an already threatened Arctic ecosystem.

Trade Policy and the Household Distribution of Income

We explore the relationship between import protection and the household distribution of income. We first develop a general-equilibrium mapping from tariffs to household inequality measures. This also yields predictions for linkages between tariffs, development level, and observed household inequality. Working with a new dataset, we then examine crosscountry variation in inequality with respect to import protection. Results are consistent with predictions of the factor-intensity model of trade. Regression results suggest that import protection makes income distribution worse for countries in labor-intensive diversification cones. This relationship shifts to one of falling inequality as incomes rise and we move to capital-intensive diversification cones.

Equity, Welfare, and the Setting of Trade Policy in General Equilibrium

The authors analyzegeneral equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components and emphasizing Gini and Atkinson indexes. They embed these inequality-adjusted social welfare functions in a general equilibrium structure mapping from tariff protection to household inequality. This yields predictions regarding the linkages between trade protection, country characteristics, and inequality within a broad general equilibrium framework. In addition, the authors can separate the efficiency and equity effects of tariffs on welfare. They then examine endogenous tariff formation when policymakers care about both equity and special interests.

Trade costs, openness and productivity: market access at home and abroad

This paper discusses the channels between openness and productivity and trade hampering factors. The stylized facts from the heterogeneous firms literature suggests that firms face market entry costs for each new product they export and to each new export market. Transport costs, border costs and retail and wholesale distribution costs might add up to 170% of the export value, but formal import tariffs and duties are relatively unimportant. The results by the Observatory of European SMEs survey, which has firm-level data for the whole European Union confirm this result. Lack of knowledge on export markets and regulations in other countries are important trade barriers for European firms. From these outcomes it could be derived that EU trade policies should be directed to deep integration with other countries, preferably by implementing internal market policies for goods and services trade and foreign direct investment. These policies can deal with reducing regulations heterogeneity, non-tariff barriers and customs procedures. Providing public information on export markets (e.g. customers, contact, and distribution networks) could also be helpful, if well targeted.

Identifying hubs and spokes in global supply chains using redirected trade in value added

ABSTRACT The increasing importance of global supply chains has prompted the use of analytical tools based on trade in value added – instead of traditional measures in gross value. We use this analytical framework to develop indicators that identify production hubs and supply spokes in global supply chains. Using these indicators and the Global Trade Analysis Project (GTAP) database, we quantify the relative importance of redirected value-added trade and the hub and spoke relationships at the aggregate level and for specific highly integrated industries.

Household Inequality, Welfare, and the Setting of Trade Policy

We analyze general equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components through Gini and Atkinson indexes. We embed these inequality-adjusted social welfare functions in a general equilibrium structure mapping from tariff protection to household inequality. This yields predictions regarding the linkages between trade protection, country characteristics and inequality in Heckscher-Ohlin and Ricardo-Viner frameworks. In addition, we can separate the efficiency and equity effects of tariffs on welfare. We then examine endogenous tariff formation when policy makers care about both equity and special interests.

The welfare effects of free trade agreements in quantitative trade models: A comparison of studies about Transatlantic Trade and Investment Partnership

We compare different methodological approaches to predicting the welfare effects of trade policy experiments. We focus on studies that estimate the economic effects of the Transatlantic Trade and Investment Partnership (TTIP). Methodologically, the studies can be divided into those employing computable general equilibrium (CGE) models and structural gravity (SG) models. We compare and critically discuss differences in the estimated trade cost reductions and in the economic models employed, and how these can explain the relatively wide range of economic effects found in the different TTIP studies. We conclude that reasonable estimates of the welfare effects for the TTIP partners are between 0.5% and 2%.

The labor content of exports database

This paper develops a novel methodology to measure the quantity of jobs and value of wages embodied in exports for a large number of countries and sectors for intermittent years between 1995 and 2011. The resulting Labor Content of Exports database allows the examination of the direct contribution of labor to exports as well as the indirect contribution via other sectors of the economy for skilled and unskilled labor. The analysis of the new data sets documents several new findings. First, the global share of labor value added in exports has been declining globally since 1995, but it has increased in low-income countries. Second, in line with the standard Hecksher-Ohlin trade model, the composition of labor directly contained in exports is skewed toward skilled labor in high-income countries relative to developing countries. However, that is not the case for the indirect labor content of exports. Third, manufacturing exports are a key source of labor demand in other sectors, especially in middle- and low-income countries. And the majority of the indirect demand for labor spurred by exports is in services sectors, whose workers are the largest beneficiaries of exporting activities globally. Fourth, differences in the labor value added in exports share across developing countries appears to be driven more by differences in the composition of exports rather than in sector labor intensities. Finally, average wages typically increase rapidly enough with the process of economic development to more than compensate the loss in jobs per unit of exports. The paper also includes the necessary information to build the Labor Content of Exports database from the original raw data, including stata do-files and matlab files, as well as descriptions of the variables in the data set.