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

Henry Kim and Jinill Kim
Authors registered in the RePEc Author Service: Sunghyun Henry Kim ()

No 503, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: This paper studies optimal tax policy design 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 (tax rates respond to changes in productivity) on consumption, and capital and labor income taxes. Unlike the conventional wisdom regarding stabilization policies, procyclical factor income tax policy is optimal in open economy. Procyclical tax policy generates efficiency gains by correcting 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
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://ase.tufts.edu/econ/papers/200503.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 (2005)
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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