A Tale of Tax Policies in Open Economies

Auray, Stéphane; Eyquem, Aurélien; Gomme, Paul

A Tale of Tax Policies in Open Economies

Stéphane Auray, Aurélien Eyquem and Paul Gomme

Abstract: To evaluate fiscal policy reforms for Euro-area countries, this article develops and calibrates a small open economy model. Debt reduction reforms require higher tax rates in the short term in exchange for lower rates in the long term as the debt-servicing burden falls. Using the capital income tax to implement such a policy leads to welfare gains; the consumption tax, a very small welfare gain; and the labor income tax, a welfare loss. Holding fixed the long-run debt-output ratio, offsetting a lower capital income tax with either a higher labor income or consumption tax generally yields welfare gains.

Keywords: tax reforms; public deficits; open economies; Fiscal policies (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

Published in International Economic Review, 2016, 57 (4), pp.1299-1333. ⟨10.1111/iere.12199⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01232216

DOI: 10.1111/iere.12199

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