This paper considers the problem of the optimal time path of contraction of an industry which has been hit by foreign competition, and shows that in general, along the optimal path, a production subsidy is warranted. The optimal subsidy trades off the benefit of unemployment in speeding up the...

The paper shows that an increase in competition has two effects on managerial incentives: It increases the probability of liquidation, which has a positive effect on managerial effort, but it also reduces the firm’s profits, which may make it less attractive to induce high effort. Thus, the...

The European Monetary Union (EMU) will involve socialization of the existing seigniorage wealth of the national central banks. This socialization will create windfall gains for countries with relatively low monetary bases such as France and the UK and it will be disadvantageous for countries...

This paper studies the optimal taxation of capital income in a simple model of a small open economy where domestic residents can evade taxes on their foreign investment income. The national government can only tax domestic capital income and can impose capital controls, which however absorb real...

Foreign direct investment has been disappointingly low in eastern Europe, which has been reluctant to make existing assets available to foreign investors. To mitigate any such resentment, we propose a participation model in which foreign investors compete for joint venture contracts. Host...

This paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists, subject to a fixed revenue requirement. Capital market integration increases the efficiency costs of a tax on capital hut simultaneously changes the...