Seminar: Globalization and the instruments of international trade
- Preliminary topics Topic 1: Consumption tax and border adjustment tax: steps towards fair trade or new
Mercantilism?
President Trump announced a new tax system, based on consumption tax instead of income tax and
border adjustment taxes that should compensate unfair trade conditions arising from countryspecific rules of taxation. Some economists point towards the rebate of value-added taxes for
exports and the potential for firms to avoid corporate and income taxation as reasons for moving
from income towards consumption taxes. The topic of this seminar paper is to analyze the
suggestions for consumption and border adjustment taxes in the light of the academic debate.
Intpoductory literature:
Navarro, P. and W. Ross (2016). Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy
Impacts. mimeo. (Link to paper)
Burman, L., William, G., and R. Suarez (2011). The Pros and Cons of a Consumption Tax. Brookings
Institution. (Link to paper)
Auerbach, A.J. and D. Holtz-Eakin (2016). The Role of Border Adjustments in International Taxation.
American Action Forum, December 2, 2016. (Link to paper)
Topic 2: Mobile capital and tax havens: Challenges for new policy reforms!
Recent leaks of massive offshore holdings exposed unprecedented hidden financial dealings of the rich
and powerful (or “influential people and companies”). The usage of letterbox companies in tax havens
has apparently become an attractive way of tax avoidance. The task of the seminar paper is to analyze
the nature of tax havens and, importantly, to scrutinize the underlying economic incentives of
individuals. Why and for whom is it beneficial to engage in tax avoidance activities? Are there any
appropriate instruments which allow to restrain unjustifiable/discriminating tax benefits and what is
the role of double taxation?
Intpoductory literature:
Wilson, J.D. (2014). Tax havens in a world of competing countries. CESifo DICE Report, Vol. 12, No. 4,
pp. 32–39. (Link to paper)
Schjelderup, G. (2016): Secrecy jurisdictions. International Tax and Public Finance, Vol. 23, No. 1, pp.
168-189. (Link to paper)
Topic 3: “Make domestic business great again”: Corporate tax rate reductions as a mean to attract
international businesses
Both, the British Prime Minister Theresa May and the President of the United States, Donald Trump,
propose substantial decreases in corporate tax rates to attract international businesses and thereby
create employment opportunities. While Trump suggests a substantial corporate tax cut from 39%
today to 15%, May proposes to lower British corporate tax rates even down to 10%, making them the
lowest corporate tax rate in the G20 and in the European Union. With global corporate tax rates
averaging around 25%, these drastic reductions may not remain without retaliation, creating the risk
of a corporate tax race to the bottom. Against this background, the objective of this seminar paper is
to analyze the international effects of domestic corporate tax cuts and discusses potential
instruments to countervail unfair tax advantages (e.g. changes to the “foreign transaction tax law”) in
an international context.
Intpoductory literature:
Bénassy-Quéré, A., Trannoy, A. and G. Wolff (2014). Tax harmonization in Europe: Moving forward.
Les notes du conseil d’analyse économique No. 14. (Link to paper)
Devereux, M.P. and S. Loretz (2013). What do we know about corporate tax competition? National
Tax Journal, Vol. 66, No. 3, pp. 745–774. (Link to paper)
Topic 4: Export world champion Germany... again!?: Are global imbalances in international trade
permanent?
For more than a decade, the United States have been running persistent and substantial current
account deficits (e.g. approximately $470bn in 2015). At the same time China and Germany have
been running persistent substantial current account surpluses (e.g. approximately $270bn and
$351bn in 2015, respectively). These current account imbalances imply substantial net flows of
goods, services, and capital from Germany and China to the United States. According to the textbook
model of international trade, however, trade imbalances are only transitory not persistent. Freely
floating exchange rates ought to bring about relative price adjustments thereby restoring balanced
trade. Against this background the seminar paper scrutinizes the potentially distoreted dynamics of
trade imbalances. Where do they come from? Are they sustainable? What hampers necessary
adjustments mechanism? Which instruments may restore balanced trade and how can they be
applied?
Intpoductory literature:
Bernanke, B. (2015). Germany's Trade Surplus is a Problem. Brookings Institution. (Link to paper)
Hobza, A. and S. Zeugner (2014). Current accounts and financial flows in the euro area. Journal of
International Money and Finance, Vol. 48, Part B, pp. 291-313. (Link to paper)
Topic 5: “Beggar thy neighbor”: Trade imbalances through currency manipulation?
Assistant to the President of the United States, Peter Navarro (Director of Trade and Industrial Policy
and the Director of the newly-created National Trade Council) accuses Germany and China to
intentionally undervalue their currencies to gain price advantages on international markets with the
consequence that relatively cheap products from Germany and China pour into the US, while
relatively expensive US products hardly find their way to Eurasia. This intentional undervaluation,
according to Navarro, is a major cause for the immense US trade deficit. But are Germany’s and
China’s currency really undervalued? Against this background, the seminar paper studies the practice
of currency manipulation. Why and how do countries manipulate their currencies? What instruments
can be used to countervail currency manipulation? Are we possibly at the edge of a currency war?
Intpoductory literature:
Krugman, P. (2015). China 2015 Is Not China 2010. NYT Krugman Blog. (Link to paper)
Krugman, P. (2017). Germany, the Euro, and Currency Manipulation. NYT Krugman Blog. (Link to
paper)
Staiger, R.W. and Sykes, A.O. (2010). “Currency manipulation” and world trade. World Trade Review,
Vol. 9, pp. 583-627. (Link to paper)
Bergsten, C.F. and J.E. Gagnon (2012 ). Currency Manipulation, the US Economy, and the Global
Economic Order. Policy Brief 12-25. Peterson Institute for International Economics. (Link to paper)
Topic 6: International spillovers of unconventional monetary policy
In response to the economic and financial crisis of 2008 and the consequential reduction of shortterm interest rates towards zero, central banks of leading industrial economies have started to resort
to unconventional monetary policy measures (e.g., forward guidance and quantitative easing) to
stimulate economic activity. While the scientific literature has a very good understanding of the
international effects of conventional interest rate policy, the international effects of unconventional
monetary policy are still up to debate. Against this background, the objective of this paper is to
scrutinize the functioning of unconventional monetary policy and its interaction with international
trade. Which economic variables are primarily targeted by unconventional monetary policy and why?
How do these variables, in turn, influence international economic relations (e.g., trade and capital
flows)? Which mechanisms lead to the international transmission of unconventional monetary
policy? Are these spillovers beneficial or harmful?
Intpoductory literature:
Fischer, S. (2016). U.S. Monetary Policy from an International Perspective. Speech at the 20th Annual
Conference of the Central Bank of Chile, Santiago, Chile (via videoconference). (Link to paper)
Fischer, S. (2017). International Effects of Recent Policy Tightening. Remarks at the IBRN -IMF
conference: The Transmisson of Macroprudential and Monetary Policies Across Borders. (Link to
paper)
Neely, C.J. (2015). Unconventional monetary policy had large international effects. Journal of Banking
& Finance, Vol. 52, pp. 101-111. (Link to paper)
Topic 7: Secular Stagnation and the global financial markets
The ‘secular stagnation’ hypothesis, first introduced in the 1930s, describes a period of persistent low
or negative natural rate of interest resulting in slow economic growth and low inflation. Its advocates
argue that an increasing propensity to save and consequent insufficient investment demand are at the
heart of the slow economic recovery in industrialized countries since 2008. The focus of this seminar
paper is to elaborate on the theory of ‘secular stagnation’ and how it relates to other prevailing
concepts in the academic debate, e.g. the ‘savings glut hypothesis’. What are the fundamental factors
that can provoke a secular stagnation? What are the long-term economic effects? What does it imply
for economic and monetary policy?
Intpoductory literature:
Teulings, C. and R. Baldwin (2014). Secular stagnation: Facts, causes and cures. Vox eBook, VoxEU.
(Link to paper)
Eggertsson, G.B., Mehrotra, N.R. and J.A. Robbins (2017). A Model of Secular Stagnation: Theory and
Quantitative Evaluation. NBER Working Papers 23093, National Bureau of Economic Research. (Link
to paper)
Topic 8: Distributional effects in a globalizing world: ‘winners’ and ‘losers’
Past periods of prolonged globalization came along with serious economic and structural changes on
every scale (local, national and international). Several people and even nations increasingly feel left
behind whereas others gain from rising international production and trade activity. The objective of
this seminar paper is to explore who the ‘winners’ and ‘losers’ of globalization are and to elaborate on
the responsible inherent economic mechanisms. By analyzing the distributional effects and/or the role
of the speed of globalization, the paper should discuss institutions, instruments or reforms that could
help to mitigate this drifting apart of social groups or nations.
Intpoductory literature:
Hornok, C. and M. Koren (2016). The case for free trade. VoxEU. (Link to paper)
Asatryan, Z., Braun, S., Lechthaler, W., Mileva, M. and C. Montagna (2014). Compensating the losers
of free trade. WWWforEurope Working Paper No. 63. (Link to paper)
Topic 9: Multinational enterprises in the light of globalization
Multinational enterprises are responsible for two thirds of global trade, making them a key factor of
globalization. The objective of this topic is to analyze the incentives why international fragmentation
(i.e. offshoring) arises? What are the effects of offshoring for the receiving and the sending country?
In particular, how does offshoring affect the local labor markets and tax systems?
Intpoductory literature:
Antris, P. and S.R. Yeaple (2014). Chapter 2 - Multinational Firms and the Structure of International
Trade, In: Gita Gopinath, Elhanan Helpman and Kenneth Rogoff, Editor(s), Handbook of International
Economics, Vol. 4, pp. 55-130. (Link to paper)
Topic 10: Political systems and trade: Democracy through the back-door?
International trade relations and consequent economic integration inevitably interact with incumbent
political regimes. Hence, mutual beneficial trade as a means of economic and political interference
provides the potential to reduce protectionist interests and thereby push forward democratization
processes. The focus of this seminar paper is to investigate this relationship (causality?) by identifying
potential economic channels through which trade liberalization/openness affects the social and
political structure of the participating countries. What are the crucial determinants which allow for
democratizing trade effects and which policy implications can be derived?
Intpoductory literature:
Liu, X. and E. Ornelas (2014). Free Trade Agreements and the Consolidation of Democracy. American
Economic Journal: Macroeconomics, Vol. 6, No. 2, pp. 29-70. (Link to paper)
López-Córdova, J. E. and Meissner, C. (2008): The impact of international trade on democracy: A
long-run perspective. World Politics, Vol. 60, No. 4, pp. 539-75. (Link to paper)
Topic 11: International labor migration: Threat or opportunity?
For year the economics literature has been highlighting the benefits from labor migration on
demographics, economic growth, and international trade. Yet, we witness growing protectionist
tendencies with respect to labor migration in European populist parties, the UK, and the US. The
objective of this paper is to scrutinize the interaction between globalization, migration, and
international trade and – against this background – critically discuss the arguments of antiimmigration protectionism supporters and proponents. How do they hold up against the available
scientific evidence?
Intpoductory literature:
Cochrane, J.H. (2016). Trade and Immigration. In: Blueprint for America, edited by George P. Shultz,
Chapter 9. (Link to paper)
Michael A. Clemens, M.A. (2011). Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?.
Journal of Economic Perspectives, Vol. 25, No. 3, pp. 83-106. (Link to paper)
Clemens, M.A. and L. Pritchett (2016). The New Economic Case for Migration Restrictions: An
Assessment. IZA DP No. 9730, Institute for the Study of Labor. (Link to paper)