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

32 Pages Posted: 20 Dec 2003

See all articles by Jinill Kim

Jinill Kim

Korea University

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics

Date Written: October 2003

Abstract

This paper studies an international tax policy design problem by employing a two-country dynamic general equilibrium model with incomplete asset markets. We investigate the possibility of welfareimproving active tax policies, in particular capital and labor income tax, under the non-cooperative Nash equilibrium and the cooperative equilibrium. Unlike the conventional wisdom regarding stabilization policies, optimal tax policies in our economy are procyclical. Relative to the non-cooperative setting, international tax policy cooperation requires more active tax policies (about two times) and generates large extra welfare gains (by about a third).

Keywords: Income tax, welfare, stabilization, cooperation

JEL Classification: F4, E6

Suggested Citation

Kim, Jinill and Kim, Sunghyun Henry, Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation (October 2003). Available at SSRN: https://ssrn.com/abstract=478566 or http://dx.doi.org/10.2139/ssrn.478566

Jinill Kim (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701

Sunghyun Henry Kim

Sungkyunkwan University - Department of Economics ( email )

110-745 Seoul
Korea

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
150
Abstract Views
1,224
rank
215,635
PlumX Metrics