Reassessing the productivity gains from trade liberalization

JAEBIN AHN, ERA DABLA-NORRIS, ROMAIN DUVAL, BINGJIE HU, LAMIN NJIE

REVIEW OF INTERNATIONAL ECONOMICS

Abstract: This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country‐industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non‐tariff barriers. Finally, we find suggestive evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Government extraction and firm size: Local officials’ responses to fiscal distress in China

YU LIU

JOURNAL OF COMPARATIVE ECONOMICS

Abstract: This paper studies how government extraction behaviors respond to local fiscal distress in China. We exploit the 2002 Chinese Income Tax Reform which exogenously cut local government revenues from income taxes roughly by half. We find that, when facing fiscal distress, local officials resort to informal taxes, such as fees and levies, instead of formal taxes to supplement revenue. On average, the increase in informal taxes recovered 75 percent of the local government revenue loss due to the reform. The increases are more pronounced along the intensive margin and are primarily driven by more extractions from large firms. We also find that the reform led to reductions in investment and growth rates of small firms and consistently more small firms in the total size distribution.

A Schumpeterian Model of Top Income Inequality

CHARLES I. JONES, JIHEE KIM

JOURNAL OF POLITICAL ECONOMY

Abstract: Top income inequality rose sharply in the United States over the last 40 years but increased only slightly in France and Japan. Why? We explore a model in which heterogeneous entrepreneurs, broadly interpreted, exert effort to generate exponential growth in their incomes, which tends to raise inequality. Creative destruction by outside innovators restrains this expansion and induces top incomes to obey a Pareto distribution. Economic forces that affect these two mechanisms—including information technology, taxes, and policies related to innovation blocking—may explain the varied patterns of top income inequality that we see in the data.

Gordon Tullock’s Legacy

PETER BOETTKE AND ROSOLINO CANDELA, RICHARD WAGNER, WILLIAM SHUGHART, AND RANDALL HOLCOMBE
Abstract: Trained as a lawyer and practiced in the arts of war and diplomacy, Gordon Tullock opened economists’ eyes to new ways of viewing constitutional construction, the challenges of bureaucracy, the nature of government regulations, the problem of rent seeking, and the limits of voting. The four papers in this symposium explore the legacy of Gordon Tullock. The paper by Peter Boettke and Rosolino Candela as well as the paper by Richard Wagner attempt to highlight the important features of Tullock’s approach. The papers by William Shughart and Randall Holcombe explore two of Tullock’s relatively understudied contributions to political economy: his critique of the common law and his work on the political economy of redistribution

The Hayek-Friedman hypothesis on the press: is there an association between economic freedom and press freedom?

CHRISTIAN BJØRNSKOV

JOURNAL OF INSTITUTIONAL ECONOMICS

Abstract: The Hayek–Friedman hypothesis states that economic freedom is causally associated with stable democracy. I test a particular element of the hypothesis focusing on press freedom, which is arguably a necessary component of any democratic polity. Combining the Freedom House index of press freedom and the Heritage Foundation Index of Economic Freedom yields a large annual panel dataset between 1993 and 2011. Estimates show that improvements in economic freedom are associated with subsequent improvements of press freedom. The overall association is mainly driven by changes in market openness.

Can Libertarians Get Away with Fraud?

BENJAMIN FERGUSON

ECONOMICS & PHILOSOPHY, Volume 34, Issue 2

Abstract: In this paper I argue that libertarianism neither prohibits exchanges in which consent is gained through deceit, nor does it entail that such exchanges are morally invalid. However, contra James Child’s (1994) similar claim, that it is incapable of delivering these verdicts, I argue that libertarians can claim that exchanges involving deceitfully obtained consent are morally invalid by appealing to an external theory of moral permissibility.

Economic Foundations of the Territorial State System

AVIDIT ACHARYA, ALEXANDER LEE

AMERICAN JOURNAL OF POLITICAL SCIENCE

Abstract: The contemporary world is organized into a system of territorial states in which rulers exercise authority inside clearly defined boundaries and recognize the authority of other rulers outside those boundaries. We develop a model to explain how the major economic and military developments in Europe starting in the fifteenth century contributed to the development of this system. Our model rationalizes the system as an economic cartel in which self‐interested and forward‐looking rulers maintain high tax revenues by reducing competition in the “market for governance.”