Consumption Taxes and International Competitiveness in a Keynesian World
AbstractThe present paper analyzes the consequences of a consumption tax reform for the export sector. In particular, it offers an explanation why exporters support such a reform although economic theory basically predicts trade neutrality. To this purpose, the basic neoclassical model is replaced with two Keynesian assumptions, i.e. sticky wages and absence of perfect foresight. It is derived that in both cases the export sector expands in the short run. However, with sticky wages, this is only possible if, at the same time, the central bank fixes the exchange rate. In the absence of perfect foresight, on the other hand, the additional condition for the tax reform to increase exports is that the government balances its budget in each period.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 042.
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Consumption tax reform; international competitiveness; Keynesian assumptions;
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- F10 - International Economics - - Trade - - - General
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-22 (All new papers)
- NEP-IFN-2000-05-22 (International Finance)
- NEP-PBE-2000-05-22 (Public Economics)
- NEP-PUB-2000-05-22 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Trostel, Philip A., 1993. "The nonequivalence between deficits and distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 207-227, April.
- Grossman, Gene M., 1980. "Border tax adjustments: Do they distort trade?," Journal of International Economics, Elsevier, vol. 10(1), pages 117-128, February.
- Martin S. Feldstein & Paul R. Krugman, 1990.
"International Trade Effects of Value-Added Taxation,"
in: Taxation in the Global Economy, pages 263-282
National Bureau of Economic Research, Inc.
- Paul Krugman & Martin Feldstein, 1989. "International Trade Effects of Value Added Taxation," NBER Working Papers 3163, National Bureau of Economic Research, Inc.
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