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Tax Effects on the Real Exchange Rate
Author(s) -
Beck Stacie,
Coskuner Cagay
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00661.x
Subject(s) - economics , depreciation (economics) , exchange rate , monetary economics , currency , panel data , capital (architecture) , consumption (sociology) , wage , real interest rate , macroeconomics , interest rate , econometrics , labour economics , capital formation , microeconomics , profit (economics) , social science , archaeology , sociology , financial capital , history
This study examines the impact of taxes on the real exchange rate through their marginal effects on economic activity. We hypothesize that an increase in the capital interest tax rate leads to real domestic currency depreciation while an increase in wage or consumption tax rates leads to a real domestic currency appreciation. These hypotheses are supported by an empirical study using panel data estimations of annual data from 10 OECD countries over 17 years.