Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation

Sunghyun Kim () and Jinill Kim

No 169, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper studies optimal tax policy problem by employing a two-country dynamic general equilibrium model with incomplete asset markets. We investigate the possibility of welfare-improving active, contingent tax policies (under which tax rates respond to changes in productivity) on capital and labor income and consumption. Unlike the conventional wisdom regarding stabilization policies, procyclical factor-income tax policies in general improves welfare in open economies. Procyclical tax policies generate efficiency gains by correcting asset market incompleteness. Optimal tax policy under cooperative equilibrium is similar to that under the Nash equilibrium, and welfare gains from tax policy coordination is quite small

Keywords: optimal tax; procyclical; countercyclical; stabilization; cooperation (search for similar items in EconPapers)
JEL-codes: E6 F4 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://repec.org/sce2005/up.3859.1106930579.pdf (application/pdf)

Related works:
Journal Article: Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (2018)
Working Paper: Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (2006)
Working Paper: Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (2004)
Working Paper: Welfare effects of tax policy in open economies: stabilization and cooperation (2003)
Working Paper: Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (2003)
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