Fiscal Policy and Redistribution in a Small Open Economy with Aging Population

Yongseung Jung ()
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Yongseung Jung: Kyung Hee University

East Asian Economic Review, 2021, vol. 25, issue 4, 361-401

Abstract: This paper sets up a two agent small open economy with monopolistically competitive firms and catching up with the Joneses to investigate the labor and capital Laffer curve, taking into account aging population along the line of Auray et al. (2016), Galí and Monacelli (2005), and Trabandt and Uhlig (2011). The paper finds that the higher the market power of firms is, the larger the consumption inequality between asset holders and non-asset holders is in the economy with aging population. It also finds that there is room for government to increase the tax revenue by raising tax rates under the economy with higher markup, as households will work more hours to compensate for their loss of labor income to tax hikes. The expected maximum tax revenue is likely to shrink with progressive taxations, since non-asset holders with additional dividend income work less and consume more. The paper finds that the fiscal multiplier decreases with the degree of progressive redistribution.

Keywords: Aging; Laffer Curve; Open Economy; Taxes; Two Agent (search for similar items in EconPapers)
JEL-codes: E60 J11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0401

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