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A Tale of Tax Policies in Open Economies

  • 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
Date of revision:
Handle: RePEc:crd:wpaper:12009
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  1. Stéphane Auray & Beatriz De Blaz & Aurélien Eyquem, 2010. "Ramsey Policies in a Small Open Economy with Sticky Prices and Capital," Post-Print halshs-00588096, HAL.
  2. Mathias Trabandt & Harald Uhlig, 2009. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," NBER Working Papers 15343, National Bureau of Economic Research, Inc.
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  9. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
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  11. Stéphane Auray & Aurélien Eyquem, 2014. "Welfare Reversals in a Monetary Union," Post-Print halshs-00957984, HAL.
  12. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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