We embed a competitive search model with labor market discrimination, or nepotism, into a two-sector, two-country framework in order to analyze how labor market discrimination impacts the pattern of international trade and also how trade trade affects discrimination. Discrimination, or nepotism,...

This paper presents a trade model with capital and labor as factors of production. The main contribution of this paper is that it considers a new type of firm heterogeneity, which is empirically relevant: firms in this paper differ with respect to their factor shares in production. Therefore,...

Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where...

This paper studies the design of tax systems that implement a planner's second-best allocation in a market economy. An example shows that the widely used Mirrleesian (1976) tax system cannot implement all incentive-compatible allocations. Hammond's (1979) "principle of taxation" proves that any...

Tax Liability Side Equivalence (tax LSE) claims that the statutory incidence of a tax is irrelevant for its economic incidence. In gift-exchange labor markets, firms provide a gift to workers by paying high wages, and workers reciprocate by providing high efforts. Tax LSE is theoretically...

This paper studies the implications of monopsony power for optimal income taxation and welfare. Firms observe workers' abilities while the government does not and monopsony power determines what share of the labor market surplus is translated into profits. Monopsony power increases the tax...

We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the...