12:00

Xiaoming Cai (VU University Amsterdam)

Effects of a Minimum Price in a Search Market with Price Posting
In this paper I consider the effects of a minimum price in a search model with price posting. It is well known that a maximum price only affects the upper support of the price offer distribution in Burdett and Judd (1983). I show that with a minimum price, there will be a mass point, and if it is sufficiently high, the price distribution will become degenerate. I also show that under some matching technology, the de-centralized market equilibrium can have too little entry, and a minimum price could achieve the social optimum. Field: macro

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12:45

Guilherme Oliveira (University of Amsterdam)

Extractive States: The Case of the Italian Unification
Most social scientists attribute the current economic differences between the North and the South of Italy to regional differences in culture, which date back to the Middle Ages. However, recent literature traces the origin of that economic gap to Italy’s unification in 1861. In this paper we inquire whether the North-South divide can be attributed to the unification of fiscal policy after 1861. We construct a two-region (North and South), and two-sector (modern and traditional) static general equilibrium model with a central government captured by the Northern elite. In fact, we show that a combination of taxation, rent-seeking, and public good provision can lead to a reversal of fortunes, i.e. even if the South was more productive than the North, fiscal policy can make the latter to have more welfare than the former. Furthermore, we collected fiscal data of the first 50 years of unified Italy directly from the annual financial books of the Italian Ministry of Finance. Together with already available economic and social data, we test the reversal of fortunes hypothesis. Overall, there is evidence that, at the very least, fiscal policy after the unification did not favored the South. Therefore, not only we take another step towards understanding the Italian North-South divide, but we also contribute to the literature on economic and political integration by showing that regional preferences may emerge and affect policy within centralized political systems. Joint with: Carmine Guerriero. Field: political economy