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Trade Structure and Growth Effects of Taxation in a Two-Country World

Author

Listed:
  • Daisuke Amano

    () (Otaru University of Commerce)

  • Jun-ichi Itaya

    () (Hokkaido University)

  • Kazuo Mino

    () (Kyoto University)

Abstract

This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international lending and borrowing are allowed. In the presence of financial capital mobility, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.

Suggested Citation

  • Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers 891, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:891
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    References listed on IDEAS

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    More about this item

    Keywords

    factor-income tax; consumption tax; equilibrium dynamics; two-country model; endogenous growth; variable labor supply;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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