Tim Schmidt-Eisenlohr's Homepage

Abstract: Cross border transactions are conducted using different payment contracts, the usage of which varies across countries and over time. In this paper I build a model that can explain this observation and study implications from this for international trade. In the model exporters optimally choose payment contracts, trading off differences in enforcement and efficiency between financial markets in different countries. I find that the ability of firms to switch contracts is central to the reaction of trade to variations in financial conditions. Numerical experiments with a two-country version of the model suggest that limiting the choice between payment contracts reduces traded quantities by up to 60 percent.

Abstract: Larger firms are more likely to use tax haven operations to exploit international tax differences. We study a tax game between a large country and a tax haven modeling heterogeneous monopolistic firms, which can shift profits abroad. We show that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenue. Similar effects hold for a higher substitutability across varieties. We find that models with homogeneous firms understate the strength of tax competition.

Abstract: Policy makers try to optimally respond to liquidity problems of banks in the context of international linkages and externalities. Extending Allen and Gale (2000) we provide a model of international contagion allowing for bank bail-outs financed by distortionary taxes. In the sequential game, costs and benefits of intervention differ between the trouble spot and the crisis-importing country leading to potential inefficiencies in the absence of coordination. We identify a new source of inefficiency that is due to the sequential nature of the game. We study the effects of cross-country deposits and different country sizes. The introduction of a central authority improves overall efficiency, but does not always imply Pareto-improvements. In this regard, we show which countries might lose and win given different institutional arrangements.