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Fiscal Devaluation with Endogenous Markups: Productivity and Welfare

Carré, Martine; Carbonnier, Clément; Belan, Pascal (2021), Fiscal Devaluation with Endogenous Markups: Productivity and Welfare, The Scandinavian Journal of Economics, 123, 4, p. 1159-1189. 10.1111/sjoe.12435

Type
Article accepté pour publication ou publié
Date
2021-10
Journal name
The Scandinavian Journal of Economics
Volume
123
Number
4
Publisher
Wiley
Pages
1159-1189
Publication identifier
Metadata
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Author(s)
Carré, Martine
Centre de recherche en économie et management [CREM]
Laboratoire d'Economie de Dauphine [LEDa]
Carbonnier, Clément
Belan, Pascal
Laboratoire d'économie et de management de Nantes Atlantique [LEMNA]
Théorie économique, modélisation et applications [THEMA]
Abstract (EN)
We study fiscal devaluation (i.e., revenue‐neutral shift from payroll to consumption tax) in a two‐country model of international trade. We analyze how such a policy modifies competition between heterogeneous producers, endogenous markups, and the allocation of inputs. We show that fiscal devaluation increases (resp. decreases) consumption in the net importing (resp. net exporting) country, regardless of which country implements the policy. Numerical illustrations suggest that fiscal devaluation is a deflationary policy. In most cases, input resources are reallocated to less productive firms, partly because of the deformation of the profit structure along the distribution of productivity.
Subjects / Keywords
Competitiveness; international trade; tax reform
JEL
H20 - General
F12 - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation