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Ramsey-optimal Tax Reforms and Real Exchange Rate Dynamics

Stéphane Auray, Aurélien Eyquem and Paul Gomme ()

No 18001, Working Papers from Concordia University, Department of Economics

Abstract: We solve the Ramsey-optimal tax plan for a small open economy with an endogenously-determined real exchange rate. The open economy constrains the government's setting of the capital income tax rate since physical capital cannot be dominated in rate of return by foreign assets. However, the endogenous real exchange rate loosens this constraint relative to a one good open economy model in which the real exchange rate is necessarily fixed. We find that, the dynamics of the two good small open economy model more closely resemble those of a closed economy model than a one good small open economy model.

Keywords: optimal fiscal policy; tax reforms; welfare (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-pbe
Date: 2018-08
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http://paulgomme.github.io/optimal-2018-08.pdf (application/pdf)

Related works:
Journal Article: Ramsey-optimal tax reforms and real exchange rate dynamics (2018) Downloads
Working Paper: Ramsey-optimal tax reforms and real exchange rate dynamics (2018)
Working Paper: Ramsey-optimal Tax Reforms and Real Exchange Rate Dynamics (2017) Downloads
Working Paper: Ramsey-optimal Tax Reforms and Real Exchange Rate Dynamics (2014) Downloads
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