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Trade Structure and Growth Effects of Taxation in a Two-Country World

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Title: Trade Structure and Growth Effects of Taxation in a Two-Country World
Authors: Amano, Daisuke Browse this author
Itaya, Jun-ichi Browse this author →KAKEN DB
Mino, Kazuo Browse this author
Keywords: factor-income tax
consumption tax
equilibrium dynamics
two-country model
endogenous growth
variable labor supply
Issue Date: May-2014
Publisher: Graduate School of Economics and Business Administration, Hokkaido University
Journal Title: Discussion Paper, Series A
Volume: 273
Start Page: 1
End Page: 40
Abstract: This paper explores the long-run impacts of tax policy in a two-country model of endogenous growth with variable labor supply. We focus on international spillover effects of tax reforms under alternative trade structures. It is shown that if the instantaneous utility function of the representative family in each country is additively separable and if international capital mobility is absent, then a change in taxation in one country does not directly affect capital formation in the other country. Such a conclusion is fundamentally modified if international borrowing and lending are allowed. Due to free financial flows, a change in tax policy in one country directly diffuses to the growth performance of the other country, even though preference structures are assumed to be log-additive forms.
Type: bulletin (article)
Appears in Collections:Discussion paper > Series A

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