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Tax Reform and Coordination in a Currency Union

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  • Benjamin Carton

Abstract

We propose a two-country DSGE model to analyze short-term and long-term impact of a modification of consumption and labor tax rate in one country in a currency union. The model embodies the fact that firms differ in their pricing behavior after a VAT tax increase. Due to the common monetary policy, national tax policies have large spill-overs on the rest of the currency union. Furthermore, a fiscal devaluation is different from a nominal devaluation due to the common monetary policy.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2012-23.

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Date of creation: Oct 2012
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Handle: RePEc:cii:cepidt:2012-23

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Keywords: Fiscal Policy; Monetary Policy; DSGE; Value added tax; Monetary Union;

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  1. Coenen, Günter & McAdam, Peter & Straub, Roland, 2008. "Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2543-2583, August.
  2. Jerome Henry & Pablo Hernandez de Cos & Sandro Momigliano, 2004. "The short-term impact of government budgets on prices; evidence from macroeconometric models," Temi di discussione (Economic working papers) 523, Bank of Italy, Economic Research and International Relations Area.
  3. Stéphane Adjemian & Christophe Cahn & Antoine Devulder & Nicolas Maggiar, 2008. "Variantes en univers incertain," Économie et Prévision, Programme National Persée, vol. 183(2), pages 223-238.
  4. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  5. Stefan Boeters & Christoph Bohringer & Thiess Buttner & Margit Kraus, 2010. "Economic effects of VAT reforms in Germany," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2165-2182.
  6. Stéphane Gauthier, 2006. "Un exercice de TVA sociale," Working Papers 2006-07, Centre de Recherche en Economie et Statistique.
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