We test the hypothesis that the flypaper effect can arise if the recipient government finances part of its expenditures with a distortionary tax. We present a simple theoretical framework that shows how a lump-sum transfer stimulates the marginal expenditures of a recipient government through an...

We develop a new general equilibrium monopolistic competition model with variable demand elasticity, heterogeneous firms, and multiple asymmetric regions. Wages, productivity, consumption diversity, and markups across firms and markets are all endogenously determined and respond to trade...