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A Tale of Tax Policies in Open Economies

Stéphane Auray, Aurélien Eyquem and Paul Gomme ()
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Aurélien Eyquem: GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - UJM - Université Jean Monnet [Saint-Etienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique, GREDI - Groupe de recherche en économie et développement international - Université de Sherbrooke [Sherbrooke]

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Abstract: Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various permanent tax changes. The first set of experiments considers a targeted one percentage point reduction in the government deficit-to-GDP ratio through raising one of : the consumption tax, the labor income tax, or the capital income tax. In terms of welfare, the consumption tax is found to be the least costly of the tax increases. A second set of experiments looks at deficit-neutral tax changes : partially replacing the capital income tax with either a higher labor income tax or higher consumption tax ; and partially replacing the labor income tax with an increased consumption tax. Reducing reliance on capital income taxation is welfare-enhancing, although it leads to short term losses. Reducing labor income taxation improves international competitiveness and is welfare-improving.

Keywords: fiscal policies; open economies; public deficits; tax reforms (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pub
Date: 2012-01-03
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00655931
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Related works:
Working Paper: A Tale of Tax Policies in Open Economies (2016)
Working Paper: A Tale of Tax Policies in Open Economies (2015) Downloads
Working Paper: A Tale of Tax Policies in Open Economies (2014)
Working Paper: A Tale of Tax Policies in Open Economies (2013)
Working Paper: A Tale of Tax Policies in Open Economies (2013)
Working Paper: A Tale of Tax Policies in Open Economies (2012) Downloads
Working Paper: A Tale of Tax Policies in Open Economies (2012) Downloads
Working Paper: A Tale of Tax Policies in Open Economies (2011) Downloads
Working Paper: A Tale of Tax Policies in Open Economies (2011) Downloads
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