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Competitive tax reforms in a monetary union with endogenous entry and tradability

Stéphane Auray, Aurélien Eyquem and Xiaofei Ma

European Economic Review, 2017, vol. 98, issue C, 126-143

Abstract: We quantify the effects of competitive tax reforms within a two-country monetary union model with endogenous entry and endogenous tradability. As expected, their effects on output, consumption, hours worked and the terms of trade are positive. Extensive margins provide additional transmission mechanisms that turn the response of foreign output from negative to positive and yields larger aggregate welfare gains compared to alternative models. These positive spillovers are due to the positive effect of the reform on variety creation in both countries and change our vision of this type of reform from beggar-thy-neighbour to prosper-thy-neighbour.

Keywords: Competitive tax reforms; Endogenous tradability; Endogenous varieties; Monetary union; Taxes; Fiscal devaluations (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 (search for similar items in EconPapers)
Date: 2017
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