Why Governments Should Tax Mobile Capital in the Presence of Unemployment

2002 ◽  
Vol 1 (1) ◽  
Author(s):  
Erkki Koskela ◽  
Ronnie Schöb
Keyword(s):  
Open Economy ◽  
Trade Unions ◽  
Tax Reform ◽  
Small Open Economy ◽  
Elasticity Of Substitution ◽  
Tax Rate ◽  
Wage Moderation ◽  
Mobile Capital ◽  
Capital Tax ◽  
The Government

Abstract This paper shows that a small open economy that suffers from involuntary unemployment should levy a positive source-based tax on capital income. A revenue-neutral tax reform that increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital. Such a tax reform will lower the marginal cost of production, increase output, reduce unemployment, and increase domestic welfare as long as the labour tax rate exceeds the capital tax rate. The result holds even though trade unions might succeed in subsequently increasing the net-of-tax wage rate, if the elasticity of substitution between capital and labour is above a critical value (which is itself below one). Finally, and importantly, independent of the size of the elasticity of substitution, the government can promote wage moderation and reduce unemployment by increasing the personal tax credit of employed workers instead of reducing the labour tax rate.

scholarly journals Tax Competition and Asymmetric Countries

Ekonomika ◽  
2004 ◽  
Vol 68 ◽  
Author(s):  
Anton Jevcak
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
National Income ◽  
Tax Rates ◽  
Tax Rate ◽  
Eu Member States ◽  
Public Inputs ◽  
Tax Harmonisation ◽  
Capital Tax ◽  
The Government

This paper explores the consequences of a difference in the levels of public inputs accumulated over time in a small open economy model where capital tax revenues are used exclusively for the provision of public inputs, while the government sets the capital tax rate in way to maximise its country’s national income. It is shown that in this case the optimal capital tax rate in a country is a decreasing function of its stock of accumulated public inputs. The model thus implies that capital tax harmonisation could actually be detrimental to the so-called core EU member states as it could fix their capital tax rates at an in-optimally high levels and thus hinder their ability to dampen undesirable capital out- flows.

Liquidity constraints, international trade, and optimal monetary policy

2017 ◽  
Vol 20 (2) ◽  
Author(s):  
Wai-Ming Ho
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Capital Requirements ◽  
Capital Inflows ◽  
Working Capital ◽  
Tax Rate ◽  
Friedman Rule ◽  
Domestic Credit ◽  
International Borrowing ◽  
The Government

AbstractThe availability of liquidity matters for an economy’s production and trade as firms need working capital to finance their operations. This paper studies the interaction between trade and capital flows operating through the liquidity allocations in the financial markets using a small-open-economy, overlapping-generations model. Working capital requirements distort the intratemporal consumption allocations. International capital inflows help easing liquidity in the domestic credit market, facilitating trade and improving the intratemporal allocation, while distorting the intertemporal allocation of the economy. We show how the government can use the Friedman rule and differentiated consumption taxes to address the tradeoff between the intratemporal and intertemporal distortions and achieve the second best optimum. Imposing a higher tax rate on imports can reduce the international borrowing to imports ratio and enhance the efficiency in using capital inflows to facilitate trade flows.

scholarly journals Environmental Tax Reform and the “Double Dividend” Hypothesis in a Small Open Economy

2019 ◽  
Vol 17 (1) ◽  
pp. 217 ◽  
Author(s):  
Zhibo Zhou ◽  
Weiguo Zhang ◽  
Xinxin Pan ◽  
Jiangfeng Hu ◽  
Ganlin Pu
Keyword(s):  
Open Economy ◽  
Consumer Goods ◽  
Tax Reform ◽  
Family Income ◽  
Small Open Economy ◽  
Double Dividend ◽  
Policy Implications ◽  
Environmental Tax ◽  
Pigouvian Tax ◽  
Tax Rate

In this paper, we build and analyze a general equilibrium model to evaluate the effects of environment tax reform on a small open economy in a “suboptimal environment” with existing tax distortions. We then use the macroeconomic data from the Chongqing Municipality in China to conduct simulations to empirically test our analytic results. Our main findings include the followings. First, an increase in environmental tax rate can effectively reduce the use of polluting consumer goods by households as well as investment in polluting factors by enterprises. Hence, an increase in environmental tax rate can improve environmental quality and obtain “environmental dividend”. Second, an increase in environmental tax rate can negatively impact employment, family income and economic growth. Hence, there is no “non-environmental dividend” effect. Third, an increased environmental tax rate has both substitution effect and income effect on household consumption. On the one hand, it motivates households to substitute polluting consumer goods with clean consumer goods. On the other hand, it lowers the total consumption level of households. Fourth, we show that the “double dividend” hypothesis on environmental tax is invalid. And the optimal environmental tax under the suboptimal environment is lower than the Pigouvian tax rate. Finally, we discuss the policy implications of our results.

scholarly journals The Impacts of Temporary and Permanent Public Health Policies on HRQOL in a Small Open Economy

2021 ◽  
Vol 13 (17) ◽  
pp. 9866
Author(s):  
Yasuhiro Nakamoto ◽  
Taketo Kawagishi
Keyword(s):  
Public Health ◽  
Open Economy ◽  
Public Investment ◽  
Small Open Economy ◽  
Health Policies ◽  
Public Health Policies ◽  
Long Run ◽  
Related Quality ◽  
Health Related ◽  
The Government

Considering that people can invest in their health-related quality of life (HRQOL), we investigate the effects of public health policies (i.e., a health investment subsidy policy and the direct distribution of health-related goods) on HRQOL in a small open economy. We find that when the government makes public investment in HRQOL temporarily, HRQOL deteriorates or does not improve at least. On the contrary, when public investment is enforced permanently, it improves in the long run.

scholarly journals Analysis of the necessity and efficiency of the HEI diploma holder professional retraining needs in Adjara Autonomous Republic

2020 ◽  
Vol 224 ◽  
pp. 03015
Author(s):  
George Abuselidze ◽  
Lia Davitadze
Keyword(s):  
Higher Education ◽  
Open Economy ◽  
Academic Staff ◽  
Small Open Economy ◽  
Education Programs ◽  
Employment Agency ◽  
Study Programs ◽  
Additional Costs ◽  
The Government ◽  
The Cost

At the present stage, in the context of global economic and political problems, the educational space in countries with a small open economy is of particular importance, since it is recognized as one of the key elements of ensuring public welfare. In addition to the costs directly allocated to education in Georgia, the government finances various retraining courses, the need for which is due to the higher education programs which seem to be incompatible with the labour market. The purpose of this article is to determine the cost efficiency of retraining incurred by the state, and the reasons for these additional costs as well as the aspects of retraining (profession / qualification) provided to higher education diploma holders. This last group is of particular interest to us to determine what causes the need for services provided by the employment agency in the case of people with higher education which, possibly, leads us to gaps in study programs, which, in turn, can be caused by a) higher education programs, which cannot give graduates the proper skills; or/and b) the institution of higher education has not studied the required number of graduates/skills needed in the market (and determines the number of students according to its academic staff) and/or graduates with low academic performance (which are supported by the institution of higher education so as not to lose a voucher) need retraining.

scholarly journals Post-2008 Brazilian fiscal policy: an interpretation through the analysis of fiscal multipliers

2017 ◽  
Vol 47 (1) ◽  
pp. 93-124
Author(s):  
Celso José Costa Junior ◽  
Alejandro C. García Cintado ◽  
Armando Vaz Sampaio
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Investment ◽  
Aggregate Demand ◽  
Small Open Economy ◽  
New Keynesian ◽  
Fiscal Policies ◽  
Fiscal Multipliers ◽  
Brazilian Government ◽  
The Government

Abstract The global crisis that erupted in 2007 led many countries to embark on countercyclical fiscal policies as a way to cushion the blow of a depressed aggregate demand. Advocates of discretionary measures emphasize that fiscal policy can indeed stimulate the economy. The main goal of this work is to assess whether the fiscal policies pursued by the Brazilian government in the aftermath of the 2008 crisis, succeeded in bringing the economy back on track in a sustainable fashion. To this end, the fiscal multipliers of five different shocks are studied in a small open-economy New Keynesian framework. Our results point to the government spending and public investment as the most effective fiscal tools for combating the crisis. However, the highest fiscal multiplier turned out to be the one associated with excise tax reductions.

scholarly journals Green Tax Reform and Competitiveness

2001 ◽  
Vol 2 (1) ◽  
pp. 19-30 ◽  
Author(s):  
Erkki Koskela ◽  
Hans-Werner Sinn ◽  
Ronnie Schöb
Keyword(s):  
Open Economy ◽  
Opportunity Cost ◽  
Driving Force ◽  
Tax Reform ◽  
Unit Cost ◽  
International Competitiveness ◽  
Tax Rate ◽  
Green Tax Reform ◽  
Substitution Process ◽  
Energy Tax

Abstract This paper studies a revenue-neutral green tax reform that substitutes energy for wage taxes in an open economy with unemployment. As long as the labour tax rate exceeds the energy tax rate, such a reform will increase employment, reduce the domestic firms' unit cost of production and hence increase international competitiveness and output of the economy. The driving force behind these results is the technological substitution process that a green tax reform will bring about. The resulting reduction in unemployment is welfare increasing since energy, which the country has to buy at its true national opportunity cost, is replaced with labour, whose price is above its social opportunity cost.

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