Is Coordination of Fiscal Deficits Necessary?
AbstractNational budget deficits can create externalities through their effects on international interest rates. This paper examines the scope for fiscal rules restricting government borrowing for the case where government revenues (on the margin) stem from capital income taxation. There is no need to coordinate national borrowing, if governments have access to both a saving and an investment tax instrument. In the absence of a saving tax, however, national fiscal policies affect welfare abroad through the international interest rate. A reduction in first period deficits tied to increased government spending later is always welfare improving. Reducing first period deficits without further coordination of subsequent tax and spending policies will generally not improve welfare.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1936.
Date of creation: Jul 1998
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Other versions of this item:
- Huizinga, H.P. & Nielsen, S.B., 1998. "Is Coordination of Fiscal Deficits Necessary?," Discussion Paper 1998-61, Tilburg University, Center for Economic Research.
- Harry Huizinga & Søren Bo Nielsen, . "Is Coordination of Fiscal Deficits Necessary?," EPRU Working Paper Series 98-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
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