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Tax Reform and Coordination in a Currency Union

Benjamin Carton ()

International Economics, 2012, issue 132, 141-158

Abstract: We propose a two-country DSGE model to analyze short-term and long-term impact of a modification of consumption and labor tax rate in one country in a currency union. The model embodies the fact that firms differ in their pricing behavior after a VAT tax increase. Due to the common monetary policy, national tax policies have large spill-overs on the rest of the currency union. Furthermore, a fiscal devaluation is different from a nominal devaluation due to the common monetary policy.

Keywords: Fiscal Policy; Monetary Policy; DSGE; Value added Tax; Monetary Union (search for similar items in EconPapers)
JEL-codes: C12 (search for similar items in EconPapers)
Date: 2012
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