Arbeitspapier

Unilateral Tax Policy in the Open Economy

This paper examines the effects of a unilateral reform of the redistribution policy in an economy open to international trade. We set up a general equilibrium trade model with heterogeneous agents allowing for country asymmetries. We show that under international trade compared to autarky, a unilateral tax increase leads to a less pronounced decline in aggregate real income in the reforming country, while income inequality is reduced to a larger extent for sufficiently small initial tax rates. We highlight as a key mechanism a tax-induced reduction in the market size of the reforming country relative to its trading partner, resulting in a firm selection effect towards exporting. From the perspective of a non-reforming trading partner, the unilateral redistribution policy reform resembles a unilateral increase in trade costs leading to a deterioration of terms-of-trade and a decline in both aggregate real income and inequality.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 9296

Klassifikation
Wirtschaft
Personal Income, Wealth, and Their Distributions
Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
Trade and Labor Market Interactions
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Thema
income inequality
redistribution
international trade
heterogeneous firms

Ereignis
Geistige Schöpfung
(wer)
Kohl, Miriam
Richter, Philipp M.
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2021

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Kohl, Miriam
  • Richter, Philipp M.
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2021

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