| Abstract: |
We study a policy game between exporting and importing countries in vertically
linked industries. In a successive international Cournot oligopoly, we analyse
incentives for using tax instruments strategically to shift rents vertically,
between exporting and importing countries, and horizontally, between exporting
countries. We show that the equilibrium outcome depends crucially on the
relative degree of competitiveness in the upstream and downstream parts of the
industry. With respect to national welfare, a more competitive upstream
industry may benefit an exporting (upstream) country and harm an importing
(downstream) country. On the other hand, a more competitive downstream
industry may harm exporting countries. |