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Capital and Consumption Tax Reforms in a Small Open Economy
Author(s) -
Chao ChiChur,
Yu Eden S. H.
Publication year - 2014
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/roie.12093
Subject(s) - economics , tax reform , consumption tax , indirect tax , ad valorem tax , value added tax , government revenue , consumption (sociology) , monetary economics , direct tax , tax revenue , capital (architecture) , state income tax , revenue , market economy , public economics , finance , social science , archaeology , sociology , history
The effects of a reform in capital and consumption taxes on private welfare and government tax revenue are examined for a small open, capital‐importing economy. A trade‐off between private welfare and tax revenue is encountered in maximizing social welfare. Nonetheless, lowering capital taxes and raising consumption taxes can increase both private welfare and tax revenue if the initial tax rates are not optimal. In addition, a tax reform by this fashion is a likely response to a rise in the foreign rate of return on capital.