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Consumption Taxes and International Competitiveness in a Keynesian World


Schleiniger, Reto (2000). Consumption Taxes and International Competitiveness in a Keynesian World. Working paper series / Institute for Empirical Research in Economics No. 42, University of Zurich.

Abstract

The present paper analyzes the consequences of a consumption tax reform for the export sector. In particular, it offers an explanation why exporters support such a reform although economic theory basically predicts trade neutrality. To this purpose, the basic neoclassical model is replaced with two Keynesian assumptions, i.e. sticky wages and absence of perfect foresight. It is derived that in both cases the export sector expands in the short run. However, with sticky wages, this is only possible if, at the same time, the central bank fixes the exchange rate. In the absence of perfect foresight, on the other hand, the additional condition for the tax reform to increase exports is that the government balances its budget in each period.

Abstract

The present paper analyzes the consequences of a consumption tax reform for the export sector. In particular, it offers an explanation why exporters support such a reform although economic theory basically predicts trade neutrality. To this purpose, the basic neoclassical model is replaced with two Keynesian assumptions, i.e. sticky wages and absence of perfect foresight. It is derived that in both cases the export sector expands in the short run. However, with sticky wages, this is only possible if, at the same time, the central bank fixes the exchange rate. In the absence of perfect foresight, on the other hand, the additional condition for the tax reform to increase exports is that the government balances its budget in each period.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:April 2000
Deposited On:29 Nov 2011 21:26
Last Modified:12 Aug 2017 12:49
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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