In the transitional phase towards full economic integration, European countries have the possibility of re-shaping the continental geography of specialization. We develop a two-sector two-country model that shows formally how fiscal policy can be critical in promoting specialization in a phase...

This chapter discusses tax policy in open economies. The chapter discusses the theory of optimum taxation in an economy open to international trade. Most formal models of optimum taxation assume away international trade. Its presence does not alter any basic issues or methods. The economic...