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Competitive tax reforms in a monetary union with endogenous entry and tradability

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  • Auray, Stéphane
  • Eyquem, Aurélien
  • Ma, Xiaofei

Abstract

We quantify the effects of competitive tax reforms within a two-country monetary union model with endogenous entry and endogenous tradability. As expected, their effects on output, consumption, hours worked and the terms of trade are positive. Extensive margins provide additional transmission mechanisms that turn the response of foreign output from negative to positive and yields larger aggregate welfare gains compared to alternative models. These positive spillovers are due to the positive effect of the reform on variety creation in both countries and change our vision of this type of reform from beggar-thy-neighbour to prosper-thy-neighbour.

Suggested Citation

  • Auray, Stéphane & Eyquem, Aurélien & Ma, Xiaofei, 2017. "Competitive tax reforms in a monetary union with endogenous entry and tradability," European Economic Review, Elsevier, vol. 98(C), pages 126-143.
  • Handle: RePEc:eee:eecrev:v:98:y:2017:i:c:p:126-143
    DOI: 10.1016/j.euroecorev.2017.06.002
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    More about this item

    Keywords

    Competitive tax reforms; Endogenous tradability; Endogenous varieties; Monetary union; Taxes; Fiscal devaluations;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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