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A Theory of Economic Disintegration

Author

Listed:
  • Eckhard Janeba
  • Karl Schulz

Abstract

We develop a theory of economic disintegration with both endogenously formed tax and trade policies. We show very generally that, contrary to conventional wisdom, a country’s disintegration from an integrated area leads to a deeper integration inside the area. Similarly, the departure of a country from a customs union lowers tariffs world-wide. Moreover, we introduce international firm mobility and non-cooperative business tax policies into the multi-country, multi-sector general equilibrium trade model of Melitz and Ottaviano (2008). We address the model-inherent dimensions of economic disintegration, such as tariffs, non-tariff barriers, the harmonization of production standards and regulations, business frictions, as well as household migration and analyze their effects on the domestic tax policies of asymmetric countries.

Suggested Citation

  • Eckhard Janeba & Karl Schulz, 2020. "A Theory of Economic Disintegration," CESifo Working Paper Series 8706, CESifo.
    • Handle: RePEc:ces:ceswps:_8706
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    References listed on IDEAS

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    Cited by:

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    2. Eckhard Janeba & Karl Schulz, 2024. "A Theory Of Economic Disintegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 353-392, February.
    3. Ikeda, Kiyohiro & Kogure, Yosuke & Aizawa, Hiroki & Takayama, Yuki, 2025. "Reduction analysis of hierarchical spatial economy: Trade strategy around Brexit," MPRA Paper 125691, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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