Fiscal Reform, Growth and Current Account Dynamics
AbstractThis paper examines the dynamic and long run effects of a shift from income taxes to consumption taxes in a growing small open economy. We extend the small open economy Solow-Swan model by introducing a government sector that maintains both a balanced budget and expenditure at a constant proportion of domestic income. Switching to lower income taxes promotes economic growth and improves the current account balance, despite an instantaneous drop.
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Bibliographic InfoPaper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2007-485.
Length: 19 pages
Date of creation: Sep 2007
Date of revision:
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-CBA-2007-11-24 (Central Banking)
- NEP-MAC-2007-11-24 (Macroeconomics)
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