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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)

Suggested Citation

  • James Feyrer & Jay Shambaugh, 2012. "Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 95-114, May.
  • 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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    References listed on IDEAS

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    Cited by:

    1. Shafik Hebous & Tom Zimmermann, 2014. "Revisiting the Narrative Approach of Estimating Tax Multipliers," CESifo Working Paper Series 5040, CESifo Group Munich.
    2. repec:ifs:fistud:v:38:y:2017:i::p:219-267 is not listed on IDEAS
    3. Philip R. Lane, 2013. "External imbalances and macroeconomic policy," New Zealand Economic Papers, Taylor & Francis Journals, vol. 47(1), pages 53-70, April.
    4. Hebous, Shafik & Zimmermann, Tom, 2014. "Revisiting the Narrative Approach of Estimating Fiscal Multipliers," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100408, Verein für Socialpolitik / German Economic Association.
    5. Nicholas Sly & Caroline Weber, 2013. "International Fiscal Policy Coordination and GDP Comovement," CESifo Working Paper Series 4358, CESifo Group Munich.
    6. repec:bla:reviec:v:25:y:2017:i:2:p:292-319 is not listed on IDEAS
    7. S M Ali Abbas & Jacques Bouhga-Hagbe & Antonio Fatás & Paolo Mauro & Ricardo C Velloso, 2011. "Fiscal Policy and the Current Account," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(4), pages 603-629, November.
    8. Gancho Todorov Ganchev, 2010. "The twin deficit hypothesis: the case of Bulgaria," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 357-377.
    9. Fujiwara, Ippei & Ueda, Kozo, 2013. "The fiscal multiplier and spillover in a global liquidity trap," Journal of Economic Dynamics and Control, Elsevier, vol. 37(7), pages 1264-1283.
    10. Sly, Nicholas & Weber, Caroline, 2015. "Global tax policy and the synchronization of business cycles," Research Working Paper RWP 15-7, Federal Reserve Bank of Kansas City.
    11. Antoine Goujard, 2017. "Cross‐Country Spillovers from Fiscal Consolidations," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 219-267, June.
    12. Philip R. Lane, 2011. "External Imbalances and Macroeconomic Policy in New Zealand," The Institute for International Integration Studies Discussion Paper Series iiisdp376, IIIS.
    13. Philip Lane, 2010. "Some Lessons for Fiscal Policy from the Financial Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp334, IIIS.
    14. Philip Lane, 2010. "External Imbalances and Fiscal Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp314, IIIS.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission


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