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Tax Policy and International Competitiveness

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Lawrence H. Summers

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Abstract

This paper examines the interactions between tax policy, international capitol mobility, and international competitiveness. It demonstrates that tax policies which stimulate national investment without affecting national savings must inevitably lead to deterioration in a country's trade balance in the short and intermediate run. This conclusion, which contradicts a great deal of popular rhetoric highlights the importance of considering the macroeconomic as well as the microeconomic aspects of tax changes. Yore generally, the effects of tax policies depend critically on the extent of the international capital flows which they generate. The paper examines the issue of international capital mobility both theoretically and empirically. A variety of considerations suggest that while tax policies could generate large capital flows, governments pursue policies which tend to inhibit capital flows following tax changes. This makes the analysis of tax policies difficult.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2007.

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Date of creation: Oct 1989
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Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER.
Handle: RePEc:nbr:nberwo:2007

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  1. Sun Bae Kim, 1993. "Do capital controls affect the response of investment to saving? evidence from the Pacific Basin," Economic Review, Federal Reserve Bank of San Francisco, pages 23-39. [Downloadable!]
  2. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Levent Bulut, 2007. "External Debts and Current Account Adjustments," Emory Economics 0716, Department of Economics, Emory University (Atlanta). [Downloadable!]
  4. Jérôme Héricourt & Mathilde Maurel, 2005. "A new look at the Feldstein-Horioka puzzle : an "European-Regional" perspective," Cahiers de la Maison des Sciences Economiques j05070, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
    Other versions:
  5. Jane Marrinan & Eva Ventura, 1995. "Efectos del gasto publico sobre el ahorro y la inversión en una economía abierta," Investigaciones Economicas, Fundación SEPI, vol. 19(3), pages 349-370, September. [Downloadable!]
  6. Ahmad Zubaidi Baharumshah & Evan Lau & Ahmed M. Khalid, 2005. "Testing Twin Deficits Hypothesis: Using VARs and Variance Decomposition," International Finance 0504001, EconWPA. [Downloadable!]
  7. Martin Feldstein, 1997. "Tax Policy and International Capital Flows," NBER Working Papers 4851, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Robert A. Blecker, 1998. "International Capital Mobility, Macroeconomic Imbalances, and the Risk of Global Contraction," SCEPA Working Papers 1998-10, Schwartz Center for Economic Policy Analysis (SCEPA), The New School, revised Nov 2000. [Downloadable!]
  9. Alan M. Taylor, 1996. "International Capital Mobility in History: The Saving-Investment Relationship," NBER Working Papers 5743, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Mamingi, Nlandu, 1993. "Savings investment correlations and capital mobility in developing countries," Policy Research Working Paper Series 1211, The World Bank. [Downloadable!]
  11. Yoshiyasu Ono & Akihisa Shibata, 2006. "Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax," KIER Working Papers 613, Kyoto University, Institute of Economic Research. [Downloadable!]
    Other versions:
  12. Michael P. Dooley & Donald J. Mathieson & Liliana Rojas-Suarez, 1997. "Capital Mobility and Exchange Market Intervention in Developing Countries," NBER Working Papers 6247, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Carlos Marinheiro, 2006. "Egypt has presented important budget imbalances," GEMF Working Papers 2006-07, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
  15. Harold L. Cole & Maurice Obstfeld, 1991. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Lau, E. & Baharumshah, A. Z., 2006. "Twin Deficits Hypothesis in SEACEN Countries: A Panel Data Analysis of Relationships between Public Budget and Current Account Deficits," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2). [Downloadable!] (restricted)
  17. Eric van Wincoop & Jane Marrinan, 1996. "Public and Private Saving and Investment," Economics Working Papers 172, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  18. Constantinos Alexiou, 2004. "An Econometric Investigation into the Macroeconomic Relationship between Investment and Saving: Evidence from the EU Region," International Review of Applied Economics, Taylor and Francis Journals, vol. 18(1), pages 1-14, January. [Downloadable!] (restricted)
    Other versions:
  19. Daniel Levy, 2005. "Investment-Saving Comovement under Endogenous Fiscal Policy," International Finance 0505008, EconWPA. [Downloadable!]
    Other versions:
  20. Jiming Ha & Anne Sibert, 1997. "Strategic Capital Taxation in Large Open Economies with Mobile Capital," International Tax and Public Finance, Springer, vol. 4(3), pages 243-262, July. [Downloadable!] (restricted)
    Other versions:
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