{"title":"The Laffer curve for rules of origin","authors":"Keith Head , Thierry Mayer , Marc Melitz","doi":"10.1016/j.jinteco.2024.103911","DOIUrl":null,"url":null,"abstract":"<div><p>Firms in regional trade areas choose whether to comply with rules of origin (RoO) or pay a tariff penalty. Stricter content requirements initially expand regional part sourcing, but contract it when set at levels above a threshold, analogously to the Laffer curve for taxes. We calibrate the model to fit part cost shares for autos sold in North America. The effects of the 75% RoO imposed in 2020 depend on the relevant tariff and the ability to relocate assembly. With fixed assembly locations, the higher RoO reduces employment in all three countries for cars, where tariffs are low. For trucks, the 25% US tariff induces more compliance in Canada and Mexico, increasing employment in those countries. With the option to relocate assembly, higher RoOs redistribute employment to the US, but Canada and Mexico lose more, leading to a half percent decline in North American employment for both cars and trucks.</p></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"150 ","pages":"Article 103911"},"PeriodicalIF":3.8000,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0022199624000357","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Firms in regional trade areas choose whether to comply with rules of origin (RoO) or pay a tariff penalty. Stricter content requirements initially expand regional part sourcing, but contract it when set at levels above a threshold, analogously to the Laffer curve for taxes. We calibrate the model to fit part cost shares for autos sold in North America. The effects of the 75% RoO imposed in 2020 depend on the relevant tariff and the ability to relocate assembly. With fixed assembly locations, the higher RoO reduces employment in all three countries for cars, where tariffs are low. For trucks, the 25% US tariff induces more compliance in Canada and Mexico, increasing employment in those countries. With the option to relocate assembly, higher RoOs redistribute employment to the US, but Canada and Mexico lose more, leading to a half percent decline in North American employment for both cars and trucks.
期刊介绍：
The Journal of International Economics is intended to serve as the primary outlet for theoretical and empirical research in all areas of international economics. These include, but are not limited to the following: trade patterns, commercial policy; international institutions; exchange rates; open economy macroeconomics; international finance; international factor mobility. The Journal especially encourages the submission of articles which are empirical in nature, or deal with issues of open economy macroeconomics and international finance. Theoretical work submitted to the Journal should be original in its motivation or modelling structure. Empirical analysis should be based on a theoretical framework, and should be capable of replication.
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