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Ramsey-optimal tax reforms and real exchange rate dynamics

Author

Listed:
  • Stéphane Auray

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Paul Gomme

    (CIREQ - Centre interuniversitaire de recherche en économie quantitative)

Abstract

We solve for the Ramsey-optimal path for government debt, labor income taxes and capital income taxes for a small open economy with an endogenously-determined real exchange rate. Due to the endogenous exchange rate, the model must be solved using the `primal problem': maximize the lifetime utility of the representative household subject to equilibrium conditions and the government budget constraint. The open economy constrains the government's setting of the capital income tax rate since physical capital cannot be dominated in rate of return by foreign assets. However, the endogenous real exchange rate loosens this constraint relative to a one good open economy model in which the real exchange rate is necessarily fixed.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Paul Gomme, 2018. "Ramsey-optimal tax reforms and real exchange rate dynamics," Post-Print halshs-01887448, HAL.
    • Handle: RePEc:hal:journl:halshs-01887448
    DOI: 10.1016/j.jinteco.2018.09.007
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    Cited by:

    1. repec:spo:wpmain:info:hdl:2441/32r3ebde539odb82dkmep529vf is not listed on IDEAS
    2. Auray, Stéphane & Eyquem, Aurélien, 2020. "The macroeconomic effects of lockdown policies," Journal of Public Economics, Elsevier, vol. 190(C).
    3. Stéphane Auray & Devereux Michael B. & Aurélien Eyquem, 2020. "Trade Wars, Currency Wars," Post-Print halshs-03031865, HAL.
    4. Paul Gomme, 2019. "Ramsey Tax Competition with Real Exchange Rate Determination," Working Papers 19004, Concordia University, Department of Economics.
    5. repec:spo:wpmain:info:hdl:2441/5e33qpbdeh9pgbbfkkp2ddbtam is not listed on IDEAS

    More about this item

    Keywords

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    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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