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A Tale of Tax Policies in Open Economies

  • Stéphane Auray

    ()

    (ENSAI)

  • Aurélien Eyquem

    ()

    (Université de Lyon)

  • Paul Gomme

    ()

    (Concordia University)

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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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2012-32.

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Length: 41
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:crs:wpaper:2012-32
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  1. Stéphane Auray & Beatriz De Blaz & Aurélien Eyquem, 2011. "Ramsey Policies in a Small Open Economy with Sticky Prices and Capital," Post-Print halshs-00625464, HAL.
  2. Hafedh Bouakez & Aurélien Eyquem, 2012. "Government Spending, Monetary Policy, and the Real Exchange Rate," Cahiers de recherche 1212, CIRPEE.
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  6. N. Gregory Mankiw & Matthew Weinzierl, 2005. "Dynamic Scoring: A Back-of-the-Envelope Guide," Harvard Institute of Economic Research Working Papers 2057, Harvard - Institute of Economic Research.
  7. 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.
  8. Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
  9. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
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  11. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
  12. Stéphane Auray & Aurélien Eyquem, 2014. "Welfare Reversals in a Monetary Union," Post-Print halshs-00957984, HAL.
  13. Martin Berka & Michael B. Devereux & Charles Engel, 2012. "Real Exchange Rate Adjustment in and out of the Eurozone," American Economic Review, American Economic Association, vol. 102(3), pages 179-85, May.
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