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International Effects of Government Expenditure in Interdependent Economies

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  • Marcelo Bianconi
  • Stephen J. Turnovsky

Abstract

A dynamic analysis of the international transmission of government expenditure shocks under alternative methods of finance is presented. The benchmark case of lump-sum tax financing yields an expansion in both the short-run and the long-run levels of domestic activity, while crowding out domestic consumption. Activity abroad declines in the short run and, while it is stimulated during the transition, long-run activity abroad also declines. With capital income tax financing, the accompanying distortion outweighs the direct expenditure effects, so that all these responses are reversed. Financing with a tax on labor produces ambiguous responses. The welfare implications of these policies are also examined.

Suggested Citation

  • Marcelo Bianconi & Stephen J. Turnovsky, 1997. "International Effects of Government Expenditure in Interdependent Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 57-84, February.
    • Handle: RePEc:cje:issued:v:30:y:1997:i:1:p:57-84
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    Cited by:

    1. Ikeda, Shinsuke & Gombi, Ichiro, 2009. "Habit Formation In An Interdependent World Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 13(4), pages 477-492, September.
    2. Caporale, Guglielmo Maria & Ciferri, Davide & Girardi, Alessandro, 2011. "Fiscal shocks and real exchange rate dynamics: Some evidence for Latin America," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 709-723, September.
    3. Parello, Carmelo Pierpaolo, 2022. "In Defence of the Endogenous Growth Theory: "Conditional" and "Unconditional" Convergence in Two-Country AK Models," MPRA Paper 115092, University Library of Munich, Germany.
    4. Holger Strulik, 2002. "Fiscal Policy Reforms in a Global Economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(1), pages 73-91, January.
    5. Been-Lon Chen & Shun-Fa Lee, 2009. "General Fund Financing, Earmarking, Economic Stabilization, and Welfare," Public Finance Review, , vol. 37(5), pages 507-538, September.
    6. Delphine Béraud, 2002. "Transmission internationale des politiques budgétaires et imparfaite mobilité du capital," Recherches économiques de Louvain, De Boeck Université, vol. 68(3), pages 287-311.
    7. Hashimzade, Nigar & Myles, Gareth D., 2010. "Growth And Public Infrastructure," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 258-274, November.
    8. K. Arin & Faik Koray, 2009. "Beggar thy Neighbor? The Transmission of Fiscal Shocks from the US to Canada," Open Economies Review, Springer, vol. 20(3), pages 425-434, July.
    9. Wei-Bin ZHANG, 2018. "Corruption, governments’ debts, trade, and global growth," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(615), S), pages 27-50, Summer.
    10. Kirill Borissov & Joseph Hanna & Stéphane Lambrecht, 2019. "Public goods, voting, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 1221-1265, December.
    11. McKibbin, Warwick J. & Tan, Kang Yong, 2009. "Learning and international transmission of shocks," Economic Modelling, Elsevier, vol. 26(5), pages 1033-1052, September.
    12. Kirill Borissov & Joseph Hanna & Stéphane Lambrecht, 2019. "Public goods, voting, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 1221-1265, December.
    13. Birchenall, Javier A., 2008. "Equilibrium, convergence, and capital mobility in neoclassical models of growth," Economics Letters, Elsevier, vol. 99(1), pages 10-13, April.
    14. Faik Koray & K. Peren Arin, 2006. "International Transmission of Fiscal Shocks: An Empirical Investigation," Departmental Working Papers 2006-03, Department of Economics, Louisiana State University.

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