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International mobility of capital, wage indexation, and the cost of policy mistakes under ambiguity: a CGE evaluation

Author

Listed:
  • Omar O. Chisari

    (UADE & CONICET)

  • Gustavo Ferro

    () (Universidad del CEMA (UCEMA) & CONICET)

  • Juan Pablo Vila Martínez

    (UADE)

Abstract

Abstract In this paper we focus on the role institutions and structural parameters play in macroeconomic policy design and test the differential effects of tax policies on two structural parameters: the degree of international capital mobility and the rules of wage indexation practiced in the economy. We evaluate counterfactual changes in taxation in the Argentine economy using a Computable General Equilibrium (CGE) Model with unemployment, calibrated with 2006 data, showing that policy mistakes (diagnosis failures) are costlier when the degree of capital mobility is greater and the rules to determine salaries could amplify the losses. Among other taxes, we evaluate the choice of export taxation, historically one of the preferred revenue sources of Argentine governments. We discuss the choice of taxes that an optimistic and a pessimistic policymaker will make under Knightian uncertainty and find that, in the case of our CGE, an optimistic policymaker prefers to tax export goods, while a more pessimistic one tends to tax imports or non-tradable goods.

Suggested Citation

  • Omar O. Chisari & Gustavo Ferro & Juan Pablo Vila Martínez, 2017. "International mobility of capital, wage indexation, and the cost of policy mistakes under ambiguity: a CGE evaluation," International Economics and Economic Policy, Springer, vol. 14(4), pages 643-660, October.
  • Handle: RePEc:kap:iecepo:v:14:y:2017:i:4:d:10.1007_s10368-016-0343-5
    DOI: 10.1007/s10368-016-0343-5
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    References listed on IDEAS

    as
    1. Romero, Carlos A., 2009. "Calibración de modelos de equilibrio general computado: Métodos y práctica usual
      [Calibration of CGE models: Methods and current practice]
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    2. Frenkel, Roberto & Ros, Jaime, 2006. "Unemployment and the real exchange rate in Latin America," World Development, Elsevier, vol. 34(4), pages 631-646, April.
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    4. Ricardo Bebczuk & Klaus Schmidt-Hebbel, 2010. "Revisiting the Feldstein-Horioka Puzzle: An institutional sector view," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 69-104, January-D.
    5. Koskela, Erkki & Schob, Ronnie, 2002. " Optimal Factor Income Taxation in the Presence of Unemployment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 387-404.
    6. Marchand, Maurice & Pestieau, Pierre & Wibaut, Serge, 1989. " Optimal Commodity Taxation and Tax Reform under Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(3), pages 547-563.
    7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    8. Chisari, Omar & Ferro, Gustavo & González, Mariano & León, Sonia & Maquieryra, Javier & Mastronardi, Leonardo & Roitman, Mauricio & Romero, Carlos & Theller, Ricardo, 2010. "Modelo de Equilibrio General Computado para la Argentina 2006," UADE Textos de Discusión 63_2010, Instituto de Economía, Universidad Argentina de la Empresa.
    9. Erkki Koskela & Ronnie Schöb, 2000. "Optimal Factor Income Taxation in the Presence of Unemployment," CESifo Working Paper Series 279, CESifo Group Munich.
    10. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
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    More about this item

    Keywords

    Computable general equilibrium models; Economic policy; Taxes; capital mobility;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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