Competitive Tax Reforms in a Monetary Union with Endogenous Entry and Tradability

Auray, Stéphane; Eyquem, Aurélien; Ma, Xiaofei

doi:10.2139/ssrn.2916655

Cited by 4 publications

(5 citation statements)

References 31 publications

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“…First, Gomes et al (2016) simulate a largescale DSGE model (the EAGLE model) calibrated to four countries (Spain, the rest of the euro area, the United States, and the rest of the world), in order to assess a unilateral four-year-long fiscal devaluation in Spain, and a coordinated fiscal devaluation in the euro area. Secondly, Auray et al (2017) consider a temporary -eight quarters -fiscal devaluation in a sticky price framework. They develop a framework with productivity heterogeneity of the firms close to the Melitz model with CES utility function.…”

Section: Introductionmentioning

confidence: 99%

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Fiscal Devaluation with Endogenous Markups: Productivity and Welfare*

Belan

Carbonnier

Carré

2021

Scandinavian J Economics

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We study fiscal devaluation (i.e., revenue-neutral shift from payroll to consumption tax) in a twocountry model of international trade. We analyze how such a policy modifies competition between heterogeneous producers, endogenous markups, and the allocation of inputs. We show that fiscal devaluation increases (resp. decreases) consumption in the net importing (resp. net exporting) country, regardless of which country implements the policy. Numerical illustrations suggest that fiscal devaluation is a deflationary policy. In most cases, input resources are reallocated to less productive firms, partly because of the deformation of the profit structure along the distribution of productivity.

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Section: Introductionmentioning

confidence: 99%

“…Secondly, Auray et al . (2017) consider a temporary – eight quarters – fiscal devaluation in a sticky price framework. They develop a framework with productivity heterogeneity of the firms close to the Melitz model with CES utility function.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Devaluation with Endogenous Markups: Productivity and Welfare*

Belan

Carbonnier

Carré

2021

Scandinavian J Economics

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“…Farhi et al (2014) and Engler et al (2017) focus on the effects of the competitive tax policy on the price competitiveness of the home goods in the short term, leaving aside the potential long-term effects that also incorporate the effects on firm entry. Conversely, Auray et al (2018) point out that it is also important to consider the effects of this tax policy on the extensive margin of trade. Studying the role of firm entry also lies at the heart of numerous papers investigating the effects of product market deregulation.…”

Section: Introductionmentioning

confidence: 99%

Reforms and the real exchange rate: The role of pricing-to-market

Patureau

Poilly

2019

Journal of International Economics

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The paper investigates how endogenous markups affect the extent to which policy reforms can influence international competitiveness. In a two-country model where trade costs allow for international market segmentation, we show that endogenous pricing-to-market behavior of firms acts as an important transmission channel of the policies. By strengthening the degree of competition between firms, product market deregulation at home leads to a reduction in domestic markups, which generally leads to an improvement in the international competitiveness of the Home country. Conversely, the power of competitive tax policy to depreciate the real exchange rate is dampened, as domestic firms take the opportunity of the labor tax cut to increase their markups. The variability of markups also affects the normative implications of the reforms. This indicates the importance of taking into account endogenous pricing-to-market behavior when intending to correctly evaluate the overall effects of the reforms.

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“… 10 Another example of policymakers’ toolkit expansion leading to overturning the Oates hypothesis encompasses macroeconomic fiscal devaluation studies; see, e.g., Farhi et al ( 2014 ) and Auray et al ( 2017 ). …”

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confidence: 99%

Tax systems and public borrowing limits in a fiscal union

Dashkeev

Turnovsky

2022

Int Tax Public Finance

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This paper compares the implications of tax system and public borrowing limit asymmetries for the welfare cost of business cycles and interregional consumption risk sharing in a two-region fiscal union. We identify the welfare-improving and risk-sharing-improving designs of the regional tax systems and borrowing limits. We find that the choice of public borrowing limits is more consequential than is the choice of a tax regime for union welfare. It also serves as an argument for the harmonization of fiscal policies adopted in the fiscal union, as it would internalize fiscal externalities and improve consumption risk-sharing across the union regions. The key parameter determining the merits of alternative regional tax systems and possible limits to public borrowing in the fiscal union is the productivity of public good. Other aspects of the economy, such as the type of technology process, or the nature of the productivity shock do not affect the union public finance system design significantly. Extensive simulations suggest that if the productivity of public capital lies within the range of plausible empirical estimates, allowing both regions to have flexible borrowing limits and to choose whatever tax system they prefer will reduce the overall welfare costs of business fluctuations. However, for very low productivity of public capital, the welfare-improving regional public finance reforms that would prohibit public borrowing and tax labor income can produce limited benefits.

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Competitive Tax Reforms in a Monetary Union with Endogenous Entry and Tradability

Cited by 4 publications

References 31 publications

Fiscal Devaluation with Endogenous Markups: Productivity and Welfare*

Fiscal Devaluation with Endogenous Markups: Productivity and Welfare*

Reforms and the real exchange rate: The role of pricing-to-market

Tax systems and public borrowing limits in a fiscal union

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