Weakly Nonseparable Preferences and Distortionary Taxes in a Small Open Economy.

This paper examines the dynamic effects of distortionary taxes in a small open economy. The employed utility function implies both endogenous rates of time preference and a tractable form of weak nonseparability between consumption and leisure. Weak nonseparability induces novel long-run welfare and wealth effects of taxes and generates very different current account movements. Endogenous rates of time preference facilitate the examination of a tax on international borrowing and lending. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.