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

Daisuke Amano (), Jun-ichi Itaya () and Kazuo Mino
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Daisuke Amano: Otaru University of Commerce

No 891, KIER Working Papers from Kyoto University, Institute of Economic Research

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.

Keywords: factor-income tax; consumption tax; equilibrium dynamics; two-country model; endogenous growth; variable labor supply (search for similar items in EconPapers)
JEL-codes: F43 O41 (search for similar items in EconPapers)
Pages: 39pages
Date: 2014-03
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-int and nep-pbe
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http://www.kier.kyoto-u.ac.jp/DP/DP891.pdf (application/pdf)

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:kyo:wpaper:891

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