Government budget, public-sector wages and capital taxes in a small open economy : A Hong Kong case

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Author(s)

  • Chi-Chur Chao
  • Eden S.H. Yu
  • Wusheng Yu

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)54-64
Journal / PublicationChina Economic Review
Volume20
Issue number1
Publication statusPublished - Mar 2009

Abstract

This paper examines the welfare implications of adjustments in public-sector wages and capital tax rates for a small open economy in a general equilibrium setting. The individually and jointly optimal wage and tax policies are derived and interpreted. Facing reductions in land sales and falls in foreign interest rates, a cut in public workers' pay is needed to make their wage comparable to the private sector and a hike in capital taxes is recommended for a budgetary consideration. Using a computable general equilibrium model for Hong Kong, we numerically evaluate the various optimal policies which not only confirm the theoretical results but also provide quantitative estimates of the optimal policy variables. © 2008 Elsevier Inc. All rights reserved.

Research Area(s)

  • Capital taxes, Computable general equilibrium, Public-sector wages