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International Effects of Tax Reforms

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  • Frenkel, Jacob A
  • Razin, Assaf

Abstract

In an open economy with international capital flows, there is an equivalence relation between income tax, consumption tax, international borrowing tax, and an external interest earning tax. This paper analyzes tax reform involving shifts between income and consumption taxes in this setting. It is shown that the real effects of such revenue-neutral tax reform depend critically on the country's current account position and the nature of the reform. In particular, whether the world interest rate rises or falls as a consequence of a budget deficit depends on the tax system in force. The analysis provides a clear rationale for the international coordination of tax policies. Copyright 1989 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 99 (1989)
Issue (Month): 395 (Supplement)
Pages: 38-58

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Handle: RePEc:ecj:econjl:v:99:y:1989:i:395:p:38-58

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References

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  1. 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, vol. 22(1), pages 179-209, February.
  2. Alan J. Auerbach & Lawrence Kotlikoff, 1980. "National Savings, Economic Welfare, and the Structure of Taxation," Cowles Foundation Discussion Papers 570, Cowles Foundation for Research in Economics, Yale University.
  3. Judd, Kenneth L, 1987. "A Dynamic Theory of Factor Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 42-48, May.
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Cited by:
  1. Ploeg, F. van der, 1990. "Budgetary aspects of economic and monetary integration in Europe," Discussion Paper 1990-37, Tilburg University, Center for Economic Research.
  2. Giovanni Ganelli & Juha Tervala, 2014. "Dynamic Scoring in Open Economies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(1), pages 31-66, March.
  3. Enrique G. Mendoza, 2001. "The International Macroeconomics of Taxation and the Case Against European Tax Harmonization," NBER Working Papers 8217, National Bureau of Economic Research, Inc.
  4. Alberto Giovannini, 1987. "International Capital Mobility and Tax Evasion," NBER Working Papers 2460, National Bureau of Economic Research, Inc.
  5. Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1991. "International VAT Harmonization: Economic Effects," NBER Working Papers 3656, National Bureau of Economic Research, Inc.
  6. Van Der Ploeg, F., 1990. "Macroeconomic Policy Coordination During The Various Phases Of Economic And Monetary Integration In Europe," Papers 9061, Tilburg - Center for Economic Research.
  7. A. Bovenberg, 1994. "Destination- and origin-based taxation under international capital mobility," International Tax and Public Finance, Springer, vol. 1(3), pages 247-273, October.
  8. Lin, Shuanglin, 1999. "Tax reform and external balance," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 891-909, December.

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