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The International Transmission of Tax Policies in a Dynamic World Economy

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  • Turnovsky, Stephen J
  • Bianconi, Marcelo

Abstract

The international transmission of tax shocks are analyzed in a two-country infinite-horizon representative agent framework. The viability of the tax regimes, arising from the arbitrage conditions characterizing equilibrium in a perfect world capital market, is emphasized. Conditions for both short-run and long-run viability are derived, and the two polar regimes of source-based and residence-based taxation are discussed. In general, the former is found more likely to satisfy the viability conditions than the latter. With equity financing, the long-run viability of residence-based taxation is likely to require the harmonization of tax and/or dividend policy. The main features of the dynamic adjustment paths following a tax increase are characterized. Copyright 1992 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 1 (1992)
Issue (Month): 1 (November)
Pages: 49-72

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Handle: RePEc:bla:reviec:v:1:y:1992:i:1:p:49-72

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References

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  1. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  2. Søren Bo Nielsen & Peter Birch Sørensen, 1989. "Capital Income Taxation in a Growing Open Economy," Discussion Papers 89-14, University of Copenhagen. Department of Economics.
  3. Devereux, Michael B. & Shi, Shouyong, 1991. "Capital accumulation and the current account in a two-country model," Journal of International Economics, Elsevier, Elsevier, vol. 30(1-2), pages 1-25, February.
  4. Razin, Assaf & Sadka, Efraim, 1991. "International tax competition and gains from tax harmonization," Economics Letters, Elsevier, Elsevier, vol. 37(1), pages 69-76, September.
  5. Turnovsky, Stephen J., 1982. "The incidence of taxes : A dynamic macroeconomic analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 18(2), pages 161-194, July.
  6. Sen, P. & Turnovsky, S.J., 1990. "Investment Tax Credit In An Open Economy," Working Papers, University of Washington, Department of Economics 90-09, University of Washington, Department of Economics.
  7. Feldstein, Martin & Hartman, David, 1979. "The Optimal Taxation of Foreign," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 613-29, November.
  8. Turnovsky, Stephen J., 1991. "Tariffs and sectoral adjustments in an open economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(1), pages 53-89.
  9. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061430, December.
  10. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, American Finance Association, vol. 47(3), pages 1159-80, July.
  11. Sibert, Anne, 1990. "Taxing capital in a large, open economy," Journal of Public Economics, Elsevier, Elsevier, vol. 41(3), pages 297-317, April.
  12. Razin, A. & Sadka, E., 1991. "International Fiscal Policy Coordination and Competition," Papers, Tel Aviv - the Sackler Institute of Economic Studies 3-91, Tel Aviv - the Sackler Institute of Economic Studies.
  13. Grinols, E. & Turnovsky, S.J., 1991. "Stochastic Equilibrium and Exchange Rate Determination a Small Open Economy with Risk Averse Optimizing Agents," Working Papers, University of Washington, Department of Economics 91-21, University of Washington, Department of Economics.
  14. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, Elsevier, vol. 38(2), pages 183-198, March.
  15. Earl L. Grinols & Stephen J. Turnovsky, 1991. "Stochastic Equilibrium and Exchange Rate Determination in a Small Open Economy with Risk Averse Optimizing Agents," NBER Working Papers 3651, National Bureau of Economic Research, Inc.
  16. Hans-Werner Sinn, 1990. "Tax Harmonization and Tax Competition in Europe," NBER Working Papers 3248, National Bureau of Economic Research, Inc.
  17. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
  18. Ihori, Toshihiro, 1991. "Capital Income Taxation in a World Economy: A Territorial System versus a Residence System," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(407), pages 958-65, July.
  19. Assaf Razin & Efraim Sadka, 1991. "International Fiscal Policy Coordination and Competition: An Exposition," NBER Working Papers 3779, National Bureau of Economic Research, Inc.
  20. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1086-1102, December.
  21. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, American Economic Association, vol. 61(1), pages 8-27, March.
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Cited by:
  1. Birchenall, Javier A., 2008. "Equilibrium, convergence, and capital mobility in neoclassical models of growth," Economics Letters, Elsevier, Elsevier, vol. 99(1), pages 10-13, April.
  2. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers, Kyoto University, Institute of Economic Research 891, Kyoto University, Institute of Economic Research.
  3. Asea, Patrick K. & Turnovsky, Stephen J., 1998. "Capital income taxation and risk-taking in a small open economy," Journal of Public Economics, Elsevier, Elsevier, vol. 68(1), pages 55-90, April.
  4. Ikeda, Shinsuke & Gombi, Ichiro, 2009. "Habit Formation In An Interdependent World Economy," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 13(04), pages 477-492, September.
  5. Michal Kejak & Stephan Seiter & David Vavra, 2004. "Accession Trajectories and Convergence: Endogenous Growth Perspective," CERGE-EI Working Papers wp219, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. Delphine Béraud, 2002. "Transmission internationale des politiques budgétaires et imparfaite mobilité du capital," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 68(3), pages 287-311.
  7. Faik Koray & K. Peren Arin, . "International Transmission of Fiscal Shocks: An Empirical Investigation," Departmental Working Papers, Department of Economics, Louisiana State University 2006-03, Department of Economics, Louisiana State University.
  8. Bianconi, Marcelo, 1995. "Fiscal policy in a simple two-country dynamic model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(1-2), pages 395-419.
  9. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer, Springer, vol. 6(2), pages 131-148, May.
  10. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 41-66, February.
  11. Donaghy, Kieran & Federici, Daniela & Wymer, Clifford R., 1999. "An Empirical Two-Good Two-Country Representative- Agent Model with Endogenous Growth," ERSA conference papers ersa99pa347, European Regional Science Association.
  12. Jorge Blázquez, 1998. "Estructura federal, bienestar e inestabilidad política: un modelo de gasto público con externalidades internacionales," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 22(1), pages 119-149, January.

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