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Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks

  • James Feyrer
  • Jay Shambaugh

This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels of development. (JEL E21, E22, E23, E62, F32, F42)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.95
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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Pages: 95-114

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:2:p:95-114
Note: DOI: 10.1257/pol.4.2.95
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