Capital income taxation and welfare in a small open economy

Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation

“…For example,Baxter (1997) andKollmann (1998) examined the effects of taxes as well as government spending to explain the twin deficits and the U.S. trade balance, respectively 5. Papers with deterministic open-economy models include Frenkel and Razin (1992), Easterly and Rebelo (1993),Razin and Sadka (1994),Bovenberg (1994),Karayalcin (1995), and Tesar (1998, 2001).…”

Essays in Open Economy Macroeconomics

“…There are three theoretical papers closely related to our paper in terms of the questions having light shined on them: Bizer and Judd (1989), Nielsen and Sorensen (1991) and Karayalcin (1995). Bizer and Judd (1995) made a seminal contribution by highlighting the uncertainty in tax policy under a dynamic general equilibrium framework by implementing Markov process.…”

“…The former is adopted because, if the constant-discount rate does not match with the parametric world interest rate, a stationary equilibrium does not exist. On the other hand, if that rate diverges from the parametric world interest rate, the time additive preferences will cause hysteretic adjustment towards the steady state 5 Finally, by combining endogenous time preference and adjustment costs, Karayalcin (1995) builds a model that focuses on the welfare effects of capital tax instruments in a small open economy. In that framework, because of the adjustment costs, he ended up with a lower degree of consumption smoothing since agents will no longer be able to undertake a frictionless adjustment in the capital stock.…”

“…Another significant difference is that his study concentrated on unanticipated tax shocks and their welfare effects. Here, we deviate from Karayalcin (1995) in enhancing the model by involving both stochastically growing output and stochastic taxation. Also, we differ from all three papers cited above by incorporating numerical analysis which measures the magnitudes of effects due to variation in capital income taxes.…”

Essays On Political Economy

“…This may result in "welfare paradoxes", namely taxes that improve long-run welfare rather than reduce it. The subject has been studied theoretically by Karayalcin (1995) …”