The Effects of Fiscal Policy in a Two-Country World Economy: An Intertemporal Analysis
AbstractThis paper analyzes the effects of fiscal policy using a two-country general equilibrium model. A key finding is that a shift in government spending from productive purchases to consumption purchases causes a rising trade deficit and an appreciation of the terms of trade, consistent with the U.S. experiences in the 1980s. Productive public services play a critical role in these adjustments by driving a wedge between the rates of return on domestic and foreign capital. A temporary cut in the capital income tax is also crucial for explaining a persistent trade deficit and an appreciation of the terms of trade. Copyright 1995 by Ohio State University Press.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 27 (1995)
Issue (Month): 3 (August)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
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