Fiscal Policies, External Deficits, and Budget Deficits
AbstractThis paper studies the effects of fiscal policies on external and budget deficits. From a tractable small open-economy, overlapping-generation model, the effects are measured by the responses of the external deficit to an increase in the budget deficit due to a tax-cut. The responses are positively affected by the birth rate and the degree of persistence of the budget deficit. Empirical results for the G7 countries over the post-1975 period reveal that the values of birth rate are small for all, but one, countries; but the responses of external and budget deficits are substantial and persistent for most countries. In particular, the fiscal policy has the most important effects on the external deficits for Canada, Japan, and the United States; somewhat smaller impacts for France, Germany, and the United Kingdom; and negligible effects for Italy.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0632.
Date of creation: 2006
Date of revision:
Agents' Superior Information; Birth Rate; Impact and Dynamic Responses; G7 Countries; Orthogonality Restrictions;
Other versions of this item:
- Michel Normandin, 2006. "Fiscal Policies, External Deficits, and Budget Deficits," Cahiers de recherche 06-05, HEC Montréal, Institut d'économie appliquée.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-IFN-2006-09-30 (International Finance)
- NEP-MAC-2006-09-30 (Macroeconomics)
- NEP-PBE-2006-09-30 (Public Economics)
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