EconPapers    
Economics at your fingertips  
 

The redistributional consequences of tax reform under financial integration

Ayşe Kabukçuoğlu

No 188, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: I quantify the welfare effects of replacing the US capital income tax with higher labor income taxes under international financial integration using a two-country, heterogeneous-agent incomplete markets model calibrated to represent the US and the rest of the world. Short-run and long-run factor price dynamics are key: after the tax reform, interest rates rise less under financial openness than in autarky. Therefore, wealthy households gain less. Post-tax wages also fall less as a result of the faster capital accumulation, so the poor are hurt less. Hence, the distributional impacts of the reform are significantly dampened relative to autarky although a majority of households prefer the status quo. Aggregate welfare effect to the US is a permanent 0.2% consumption equivalent loss under financial openness which is roughly 15% of the welfare loss under autarky.

Keywords: tax reform; welfare (search for similar items in EconPapers)
JEL-codes: D52 E62 F41 F68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
Date: 2014-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.dallasfed.org/assets/documents/institute/wpapers/2014/0188.pdf Full text (application/pdf)

Related works:
Working Paper: The Redistributional Consequences of Tax Reform Under Financial Integration (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:188

Ordering information: This working paper can be ordered from

DOI: 10.24149/gwp188

Access Statistics for this paper

More papers in Globalization Institute Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().

 
Page updated 2019-07-11
Handle: RePEc:fip:feddgw:188