Seminar: Favoritism and Corrective Taxation

Speaker: Mathias Reynaert

Mathias Reynaert is an Assistant Professor of Economics at the Toulouse School of Economics and a research affiliate at the Center for Economic Policy Research (CEPR). His fields of interest are empirical industrial organization and environmental economics. The main focus of his research is the evaluation of taxes and regulations in the European car market.

Abstract: Corrective taxes are often suspected to favor local producers and to function as non-tariff barriers to trade. This paper defines favoritism in corrective taxes as deviations from taxes that would exclusively correct for the externality. When goods have multiple attributes, I show how a regulator can make corrective taxes attribute based to satisfy the taste for favoritism. Next, I construct two empirical measures of favoritism when externalities and taxes are observed. I illustrate these measures using data from the EU automobile market. Tariffs are forbidden within the EU open market and countries have differentiated domestic industries. Surprisingly, I find little evidence for favoritism in the EU vehicle market. Finally, I estimate demand and costs in the automobile market to study the welfare implications of favoritism and to explain why favoring domestic producers through corrective taxes is costly.

Location: Warren Hall 137 


Cornell Institute for China Economic Research (CICER)

Sustainable Environmental Energy and Resource Economics (SEERE)