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Budget Deficits under Alternative Tax Systems: International Effects

Author

Listed:
  • Jacob A. Frenkel

    (International Monetary Fund)

  • Assaf Razin

    (International Monetary Fund)

Abstract

Traditional analyses of budget deficits arising from tax cuts have focused on the size of the deficit and disregarded the underlying tax system. This paper examines the international effects of budget deficits under alternative tax systems. The key finding is that the consequences of tax policies and the characteristics of the international transmission mechanism depend critically on the composition of taxes. Under a value-added tax system, a budget deficit worsens the trade balance and raises the world interest rate; under an income-tax system, the same deficit improves the trade balance and lowers the world interest rate.

Suggested Citation

  • Jacob A. Frenkel & Assaf Razin, 1988. "Budget Deficits under Alternative Tax Systems: International Effects," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 297-315, June.
  • Handle: RePEc:pal:imfstp:v:35:y:1988:i:2:p:297-315
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    Cited by:

    1. Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1991. "International VAT Harmonization: Economic Effects," NBER Working Papers 3656, National Bureau of Economic Research, Inc.

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