On fiscal deficits, the real exchange rate and the world rate of interest
AbstractWe 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 InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 30 (1986)
Issue (Month): 5 (October)
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Web page: http://www.elsevier.com/locate/eer
Other versions of this item:
- van Wijnbergen, Sweder, 1984. "On Fiscal Deficits, the Real Exchange Rate and the World Rate of Interest," CEPR Discussion Papers 21, C.E.P.R. Discussion Papers.
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- Bovenberg, A.L., 1992.
"Investment-Promoting Policies in Open Economies: The Importance of Intergenerational and International Distributional Effects,"
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- Bovenberg, A.L., 1992. "Investment-promoting policies in open economies: The importance of intergenerational and international distributional effects," Discussion Paper 1992-20, Tilburg University, Center for Economic Research.
- Bovenberg, A.L., 1993. "Investment-promoting policies in open economies: The importance of intergenerational and international distributional effects," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152980, Tilburg University.
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- 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.
- 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.
- 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.
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