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

GATE WP 1706 – February 2017

32 Pages Posted: 14 Feb 2017

See all articles by Stéphane Auray

Stéphane Auray

CREST-Ensai

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Xiaofei Ma

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: February 14, 2017

Abstract

We quantify the effects of competitive tax reforms within a two-country monetary union model with endogenous entry and endogenous tradability. As expected, their effects on out-put, consumption, hours worked and the terms of trade are positive. Extensive margins provide additional transmission mechanisms that turn the response of foreign output from negative to positive and yields larger aggregate welfare gains compared to alternative models. These positive spillovers are due to the positive effect of the reform on variety creation in both countries and change our vision of this type of reform from beggar-thy-neighbor to prosper-thy-neighbor.

Keywords: Competitive tax reforms, endogenous tradability, endogenous varieties, monetary union, taxes, fiscal devaluations

JEL Classification: E32, E52, F41

Suggested Citation

Auray, Stéphane and Eyquem, Aurélien and Ma, Xiaofei, Competitive Tax Reforms in a Monetary Union with Endogenous Entry and Tradability (February 14, 2017). GATE WP 1706 – February 2017. Available at SSRN: https://ssrn.com/abstract=2916655 or http://dx.doi.org/10.2139/ssrn.2916655

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Xiaofei Ma

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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