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The International Transmission of Tax Policies in a Dynamic World Economy

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  • Stephen J. Turnovsky
  • Marcelo Bianconi

Abstract

This paper analyzes the international transmission of tax shocks in a two-country infinite-horizon representative agent framework. In analyzing such shocks, the viability of the underlying tax regimes, arising from the arbitrage conditions characterizing equilibrium in a perfect world capital market, is emphasized. Conditions for both short-run and long-run viability are derived, and the two polar regimes of source-based and residence-based taxation discussed. In general, we find the fanner more likely to satisfy the viability conditions, than the latter. With equity financing, the long-run viability of residence-based taxation is likely to require the harmonization of tax and/or dividend policy. The main features of the dynamic adjustment paths following a tax increase are characterized.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4086.

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Date of creation: Jun 1992
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Publication status: published as Review of International Economics, Vol. 1, Issue 1, pp. 49-72 (November 1992).
Handle: RePEc:nbr:nberwo:4086

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  1. Sen, P. & Turnovsky, S.J., 1990. "Investment Tax Credit In An Open Economy," Working Papers, University of Washington, Department of Economics 90-09, University of Washington, Department of Economics.
  2. Hans-Werner Sinn, 1990. "Tax Harmonization and Tax Competition in Europe," NBER Working Papers 3248, National Bureau of Economic Research, Inc.
  3. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  4. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061430, December.
  5. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
  6. Sibert, Anne, 1990. "Taxing capital in a large, open economy," Journal of Public Economics, Elsevier, Elsevier, vol. 41(3), pages 297-317, April.
  7. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, American Economic Association, vol. 61(1), pages 8-27, March.
  8. Roger H. Gordon, 1990. "Can Capital Income Taxes Survive in Open Economies?," NBER Working Papers 3416, National Bureau of Economic Research, Inc.
  9. Turnovsky, S.J., 1990. "Tariffs And Sectoral Adjustments In An Open Economy," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 90-13, Department of Economics at the University of Washington.
  10. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
  11. Turnovsky, Stephen J., 1982. "The incidence of taxes : A dynamic macroeconomic analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 18(2), pages 161-194, July.
  12. Earl L. Grinols & Stephen J. Turnovsky, 1991. "Stochastic Equilibrium and Exchange Rate Determination in a Small Open Economy with Risk Averse Optimizing Agents," NBER Working Papers 3651, National Bureau of Economic Research, Inc.
  13. Devereux, Michael B. & Shi, Shouyong, 1991. "Capital accumulation and the current account in a two-country model," Journal of International Economics, Elsevier, Elsevier, vol. 30(1-2), pages 1-25, February.
  14. Søren Bo Nielsen & Peter Birch Sørensen, 1989. "Capital Income Taxation in a Growing Open Economy," Discussion Papers 89-14, University of Copenhagen. Department of Economics.
  15. Feldstein, Martin & Hartman, David, 1979. "The Optimal Taxation of Foreign," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 613-29, November.
  16. Ihori, Toshihiro, 1991. "Capital Income Taxation in a World Economy: A Territorial System versus a Residence System," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(407), pages 958-65, July.
  17. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1086-1102, December.
  18. Assaf Razin & Efraim Sadka, 1991. "International Fiscal Policy Coordination and Competition: An Exposition," NBER Working Papers 3779, National Bureau of Economic Research, Inc.
  19. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, Elsevier, vol. 38(2), pages 183-198, March.
  20. Grinols, E. & Turnovsky, S.J., 1991. "Stochastic Equilibrium and Exchange Rate Determination a Small Open Economy with Risk Averse Optimizing Agents," Working Papers, University of Washington, Department of Economics 91-21, University of Washington, Department of Economics.
  21. Razin, A. & Sadka, E., 1991. "International Fiscal Policy Coordination and Competition," Papers, Tel Aviv - the Sackler Institute of Economic Studies 3-91, Tel Aviv - the Sackler Institute of Economic Studies.
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Cited by:
  1. Turnovsky, Stephen J., 1996. "Fiscal policy, growth, and macroeconomic performance in a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 41-66, February.
  2. Yasushi Iwamoto & Akihisa Shibata, 1999. "Foreign Tax Credit and the Current Account," International Tax and Public Finance, Springer, Springer, vol. 6(2), pages 131-148, May.
  3. Daisuke Amano & Jun-ichi Itaya & Kazuo Mino, 2014. "Trade Structure and Growth Effects of Taxation in a Two-Country World," KIER Working Papers 891, Kyoto University, Institute of Economic Research.
  4. Delphine Béraud, 2002. "Transmission internationale des politiques budgétaires et imparfaite mobilité du capital," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 68(3), pages 287-311.
  5. Patrick K. Asea & Stephen J. Turnovsky, 1997. "Capital Income Taxation and Risk-Taking in a Small Open Economy," NBER Working Papers 6189, National Bureau of Economic Research, Inc.
  6. Jorge Blázquez, 1998. "Estructura federal, bienestar e inestabilidad política: un modelo de gasto público con externalidades internacionales," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 22(1), pages 119-149, January.
  7. Michal Kejak & Stephan Seiter & David Vavra, 2004. "Accession Trajectories and Convergence: Endogenous Growth Perspective," CERGE-EI Working Papers wp219, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Faik Koray & K. Peren Arin, . "International Transmission of Fiscal Shocks: An Empirical Investigation," Departmental Working Papers, Department of Economics, Louisiana State University 2006-03, Department of Economics, Louisiana State University.
  9. Shinsuke Ikeda & Ichiro Gombi, 2004. "Habit Formation in an Interdependent World Economy," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0619, Institute of Social and Economic Research, Osaka University, revised Jul 2008.
  10. Donaghy, Kieran & Federici, Daniela & Wymer, Clifford R., 1999. "An Empirical Two-Good Two-Country Representative- Agent Model with Endogenous Growth," ERSA conference papers ersa99pa347, European Regional Science Association.
  11. Bianconi, Marcelo, 1995. "Fiscal policy in a simple two-country dynamic model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(1-2), pages 395-419.
  12. Birchenall, Javier A., 2008. "Equilibrium, convergence, and capital mobility in neoclassical models of growth," Economics Letters, Elsevier, Elsevier, vol. 99(1), pages 10-13, April.

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