The number of preferential trade agreements has greatly increased over the past two decades, yet most existing bilateral arrangements take the form of free trade areas, and less than ten percent can be considered to be fully fledged customs unions. This paper develops a political economy model...

Thin capitalization rules have become an important element in the corporate tax systems of developed countries. This paper sets up a model where national and multinational firms choose tax-efficient financial structures and countries compete for multinational firms through statutory tax rates...

We show how optimal saving in a two-period model is affected when prudence and risk aversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is...

This paper studies the design of the optimal non linear taxation in an economy where longevity varies across agents, and depends on three factors: longevity genes, health investment and farsightedness. Provided earnings, farsightedness and genes are correlated, governmental intervention can be...

In a standard adverse selection world, asymmetric information about product quality leads to quality deterioration in the market. Suppose that a higher investment level makes the realization of high quality more likely. Then, if consumers observe the investment (but not the realization of...

We show that a minimum wage introduced in the presence of asymmetric information about worker productivities will lead to lower unemployment levels than predicted by the standard labour market model with heterogeneous labour and symmetric information. -- minimum wages ; unemployment ; asymmetric...

This paper contributes to the on-going empirical debate regarding the role of the RBC model and in particular of technology shocks in explaining aggregate fluctuations. To this end we estimate the model's posterior density using Markov-Chain Monte-Carlo (MCMC) methods. Within this framework we...

Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing, 2008), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback between lender of last resort policy and incentives of...