Abstract
In this paper we focus on the role institutions and structural parameters play in macroeconomic policy design and test the differential effects of tax policies on two structural parameters: the degree of international capital mobility and the rules of wage indexation practiced in the economy. We evaluate counterfactual changes in taxation in the Argentine economy using a Computable General Equilibrium (CGE) Model with unemployment, calibrated with 2006 data, showing that policy mistakes (diagnosis failures) are costlier when the degree of capital mobility is greater and the rules to determine salaries could amplify the losses. Among other taxes, we evaluate the choice of export taxation, historically one of the preferred revenue sources of Argentine governments. We discuss the choice of taxes that an optimistic and a pessimistic policymaker will make under Knightian uncertainty and find that, in the case of our CGE, an optimistic policymaker prefers to tax export goods, while a more pessimistic one tends to tax imports or non-tradable goods.
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Notes
Schumacher and Strobl (2008) summarize the evidence that the same shock to natural disasters has worse consequences for poor economies.
We use the representation of General Equilibrium and the Mixed Complementarities Approach. The model is developed in the environment of GAMS/MPSGE. At present, it can be used in interface with GAMS.
The Feldstein-Horioka test consists of running a regression of the national investment rate on the national savings rate. The estimated coefficient is 1 in the case of financial autarky and 0 in the full mobility case (Bebczuk and Schmidt-Hebbel 2010).
Chisari et al. (2009) present a complete description of the sources and methods used to build the SAM for Argentina for 2006.
See Barlevy (2009)
In fact, one dominant action can be selected when all actions are considered simultaneously because the independence of irrelevant alternatives is not fulfilled under minimum regret. See Luce and Raiffa (1957).
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Acknowledgments
We are grateful to Leandro Serino, Carlos Winograd, Guillermo Rozenwurcel, Roberto Frenkel, Daniel Heymann and the thorough review of one anonymous Referee for their interesting comments.
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Chisari, O.O., Ferro, G. & Martínez, J.P.V. International mobility of capital, wage indexation, and the cost of policy mistakes under ambiguity: a CGE evaluation. Int Econ Econ Policy 14, 643–660 (2017). https://doi.org/10.1007/s10368-016-0343-5
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DOI: https://doi.org/10.1007/s10368-016-0343-5