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A Tale of Tax Policies in Open Economies

Listed author(s):
  • Stephane Auray

    ()

    (CREST-Ensai, Universite du Littoral Cote d'Opale (EQUIPPE),GREDI and CIRPEE)

  • Aurelien Eyquem

    ()

    (GATE, UMR 5824, Universite de Lyon, and Ecole Normale Superieure de Lyon, and GREDI)

  • Paul Gomme

    ()

    (Concordia University and CIREQ)

Tax-based deficit reduction experiments for the U.S.\@ and EMU-12 are conducted using an open economy model. In welfare terms, raising the consumption tax is the least costly, followed by the labor income tax, then the capital income tax. Use of an open economy model means that the incidence of the consumption tax is borne in part by foreign producers. Among revenue-neutral tax experiments, partially replacing the capital income tax is welfare-enhancing, although there are short term losses. Replacing labor income tax revenue with a consumption tax improves international competitiveness and is welfare-improving.

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File URL: http://paulgomme.github.io/a-tale-of-tax-policies.pdf
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Paper provided by Concordia University, Department of Economics in its series Working Papers with number 12009.

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Length: 42 pages
Date of creation: Apr 2012
Handle: RePEc:crd:wpaper:12009
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