Unit versus ad valorem tax comparisons in a simple New Keynesian dynamic stochastic general equilibrium model
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This paper compares unit and ad valorem taxes using a New Keynesian dynamic stochastic general equilibrium model. We show that the ad valorem tax increase is superior to the unit tax increase with respect to the comparative statics, while is equivalent to under the log-linear setting, even when price stickiness and monopolistic competition are present.
KeywordsUnit tax Ad valorem tax New Keynesian dynamic stochastic general equilibrium model
JEL ClassificationE62 H20
I gratefully acknowledge Go Kotera, Tomohito Okabe and Hiroaki Hayakawa. Financial support from the Japanese Ministry of Education, Culture, Sports, Science and Technology (No. 16K17135) is grateful acknowledge.
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