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On fiscal deficits, the real exchange rate and the world rate of interest

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  • Van Wijnbergen, Sweden

Abstract

We use a full general equilibrium 2-country, 2-period model with perfect capital markets, and intertemporal optimization and perfect foresight underlying private consumer behaviour in both countries to analyse the effects of pure fiscal policy. We demonstrate that higher government budget deficits in one country caused by a cut in commodity taxes today balanced by an equal present value increase tomorrow, will not be offset one for one by higher private savings, because of pure substitution effects triggered by the change in the intertemporal terms of trade the tax change causes.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 30 (1986)
Issue (Month): 5 (October)
Pages: 1013-1023

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Handle: RePEc:eee:eecrev:v:30:y:1986:i:5:p:1013-1023

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Web page: http://www.elsevier.com/locate/eer

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Cited by:
  1. Bovenberg, A.L., 1992. "Residence- and source-based taxation of capital income in an overlapping generations model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152976, Tilburg University.
  2. Bovenberg, A.L., 1992. "Investment-Promoting Policies in Open Economies: The Importance of Intergenerational and International Distributional Effects," Papers 9220, Tilburg - Center for Economic Research.
  3. Frenkel, Jacob & razin, assaf & Yuen, chi-wa, 1996. "Fiscal policies and growth in the world economy," MPRA Paper 22109, University Library of Munich, Germany.
  4. Song, Chi-Young, 1997. "The Real Exchange Rate and the Current Account Balance in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 11(2), pages 143-184, June.
  5. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.

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