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Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks

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  • James Feyrer
  • Jay Shambaugh

Abstract

This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels of development. (JEL E21, E22, E23, E62, F32, F42)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.95
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Pages: 95-114

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:2:p:95-114

Note: DOI: 10.1257/pol.4.2.95
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Citations

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Cited by:
  1. Ippei Fujiwara & Kozo Ueda, 2010. "The Fiscal Multiplier and Spillover in a Global Liquidity Trap," IMES Discussion Paper Series 10-E-03, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Philip Lane, 2010. "Some Lessons for Fiscal Policy from the Financial Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp334, IIIS.
  3. Philip R. Lane, 2011. "External Imbalances and Macroeconomic Policy in New Zealand," The Institute for International Integration Studies Discussion Paper Series iiisdp376, IIIS.
  4. Nicholas Sly & Caroline Weber, 2013. "International Fiscal Policy Coordination and GDP Comovement," CESifo Working Paper Series 4358, CESifo Group Munich.
  5. Ali Abbas, S.M. & Bouhga-Hagbe, Jacques & Fatás, Antonio & Mauro, Paolo & Velloso, Ricardo C., 2010. "Fiscal Policy and the Current Account," CEPR Discussion Papers 7859, C.E.P.R. Discussion Papers.
  6. Gancho Todorov Ganchev, 2010. "The twin deficit hypothesis: the case of Bulgaria," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 357-377.
  7. Philip R. Lane, 2013. "External imbalances and macroeconomic policy," New Zealand Economic Papers, Taylor & Francis Journals, vol. 47(1), pages 53-70, April.
  8. Philip Lane, 2010. "External Imbalances and Fiscal Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp314, IIIS.

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