Welfare effects of tax policy in open economies: stabilization and cooperation

Jinill Kim () and Sunghyun Henry Kim ()

No 2003-51, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies an international 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 tax policies, in particular capital and labor income tax, under the non-cooperative Nash equilibrium and the cooperative equilibrium. Unlike the conventional wisdom regarding stabilization policies, optimal tax policies in our economy are procyclical. Relative to the non-cooperative setting, international tax policy cooperation requires more active tax policies (about two times) and generates large extra welfare gains (by about a third).

Keywords: Welfare; Income tax (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pub
Date: Written 2003
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Related works:
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 (2005)
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 (2003)
Working Paper: Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (2004)
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