Tax Effects on the Real Exchange Rate

Stacie Beck and Cagay Coskuner

Review of International Economics, 2007, vol. 15, issue 5, pages 854-868

Abstract: This study examines the impact of taxes on the real exchange rate through their marginal effects on economic activity. We hypothesize that an increase in the capital interest tax rate leads to real domestic currency depreciation while an increase in wage or consumption tax rates leads to a real domestic currency appreciation. These hypotheses are supported by an empirical study using panel data estimations of annual data from 10 OECD countries over 17 years. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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