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Fiscal Deficits and Intergenerational Welfare in Almost Small Open Economies

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Author Info
David F. Burgess

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Abstract

The intergenerational welfare effects of government deficits are examined in a simple life-cycle economy which can borrow at given interest rates and import at given prices but has unexploited market power in exports. Despite perfect capital market integration, a deficit-financed tax cut to the current young causes an immediate real exchange rate of return on domestic assets. Subsequently, the real exchange rate depreciates to a lower steady-state value, and the after-tax wage decreases by more than the tax increase needed to service the larger deficit.

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File URL: http://links.jstor.org/sici?sici=0008-4085%28199611%2929%3A4%3C885%3AFDAIWI%3E2.0.CO%3B2-F
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 29 (1996)
Issue (Month): 4 (November)
Pages: 885-909
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Handle: RePEc:cje:issued:v:29:y:1996:i:4:p:885-909

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  1. David Burgess, 2006. "Public Investment Criteria in Overlapping Generations Models of Open Economies," International Tax and Public Finance, Springer, vol. 13(1), pages 59-78, January. [Downloadable!] (restricted)
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This page was last updated on 2009-12-21.

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