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- Title
Public debt and relative prices in a cross-section of countries.
- Authors
Galstyan, Vahagn; Velic, Adnan
- Abstract
This paper examines the effects of debt and distortionary labor taxation on the long-run behavior of the relative price of nontraded goods. At the theoretical level, in a two-sector open economy model we demonstrate that higher public debt, associated with higher taxation, contracts labor supply in both traded and nontraded goods sectors. Relative prices move inversely with relative supply shifts which, in turn, depend on relative factor intensities. At the empirical level, for a panel of advanced economies, we find statistically significant effects of public debt and taxes on the relative price of nontraded goods, with higher debt and taxes associated with higher relative prices.
- Subjects
PUBLIC debts; ECONOMIC indicators; PUBLIC finance; FREE trade; NONTRADED goods; ECONOMIC models
- Publication
Review of World Economics, 2018, Vol 154, Issue 2, p229
- ISSN
1610-2878
- Publication type
Article
- DOI
10.1007/s10290-018-0306-8