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Tax devaluation with endogenous margins

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taxdevaluation.pdf (823.8Kb)
Date
2015
Publisher city
Paris
Publisher
Université Paris Dauphine
Dewey
Economie internationale
Sujet
Fiscal devaluation; social VAT; tax reform; international trade
JEL code
F.F1.F12; H.H2.H20
URI
https://basepub.dauphine.fr/handle/123456789/15039
Collections
  • LEDa : Publications
Metadata
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Author
Belan, Pascal
status unknown
Carbonnier, Clément
status unknown
Carré, Martine
status unknown
Type
Document de travail / Working paper
Item number of pages
23
Abstract (EN)
Several European countries have recently envisaged to implement fiscal policies that constitute alternatives to monetary devaluation in the context of a monetary union. Social value-added tax is one of these alternatives: it consists to shift fiscal revenue from payroll tax to value-added tax, with the objective to address simultaneously competitiveness and employment problems. We analyze the consequence of such a policy in a model of international trade with heterogeneous firm à la Melitz. We depart from the CES case for taking account of the way changes in the tax rates may mo dify competition between producers, their margins, and the way these changes are refefected in prices. We first show that social VAT is neutral for zero trade balances. Then, in a two-country model, we show that, after the introduction of the social VAT, intensive and extensive margins increase in the net importing country regardless of the country that implements the policy. Both margins decrease in the net exporting country. Considering non-CES utility functions, the effects of social VAT are attenuated (amplified) if love for variety increases (decreases) with quantities

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