International Effects of Government Expenditure in Interdependent Economies
AbstractA dynamic analysis of the international transmission of government expenditure shocks under alternative methods of finance is presented. The benchmark case of lump-sum tax financing yields an expansion in both the short-run and the long-run levels of domestic activity, while crowding out domestic consumption. Activity abroad declines in the short run and, while it is stimulated during the transition, long-run activity abroad also declines. With capital income tax financing, the accompanying distortion outweighs the direct expenditure effects, so that all these responses are reversed. Financing with a tax on labor produces ambiguous responses. The welfare implications of these policies are also examined.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 30 (1997)
Issue (Month): 1 (February)
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