The division of labor between and within countries is driven by two fundamental forces, comparative advantage and increasing returns. We set up a simple Ricardian model with a Marshallian input sharing mechanism to study their interplay. The key insight that emerges is that the interaction...

Using a comprehensive international trade data set we investigate empirical regularities (known as Zipf’s Law or the rank-size rule) for the distribution of the interaction between countries as measured by revealed comparative advantage. Using the recently developed estimator by Gabaix and...

We analyze the role of optimal income taxation across different local labor markets. Should labor in large cities be taxed differently than in small cities? We find that a planner who needs to raise revenue and is constrained by free mobility of labor across cities does not choose equal taxes...