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

Daisuke Amano, Jun-ichi Itaya () and Kazuo Mino

No 273, Discussion paper series. A from Graduate School of Economics and Business Administration, Hokkaido 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 borrowing and lending are allowed. Due to free financial flows, 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.

Keywords: factor-income tax; consumption tax; equilibrium dynamics; two-country model; endogenous growth; variable labor supply (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-05
New Economics Papers: this item is included in nep-dge, nep-gro, nep-int, nep-pbe and nep-pub
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http://hdl.handle.net/2115/55701 (text/html)
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Related works:
Working Paper: Trade Structure and Growth Effects of Taxation in a Two-Country World (2014)
Working Paper: Trade Structure and Growth Effects of Taxation in a Two-Country World (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hok:dpaper:273

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