International Effects of Tax Reforms
In an open economy with international capital flows, there is an equivalence relation between income tax, consumption tax, international borrowing tax, and an external interest earning tax. This paper analyzes tax reform involving shifts between income and consumption taxes in this setting. It is shown that the real effects of such revenue-neutral tax reform depend critically on the country's current account position and the nature of the reform. In particular, whether the world interest rate rises or falls as a consequence of a budget deficit depends on the tax system in force. The analysis provides a clear rationale for the international coordination of tax policies. Copyright 1989 by Royal Economic Society.
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Volume (Year): 99 (1989)
Issue (Month): 395 (Supplement)
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References listed on IDEAS
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- Alan J. Auerbach & Laurence J. Kotlikoff, 1983.
"National Savings, Economic Welfare, and the Structure of Taxation,"
in: Behavioral Simulation Methods in Tax Policy Analysis, pages 459-498
National Bureau of Economic Research, Inc.
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- Alan J. Auerbach & Laurence J. Kotlikoff, 1981. "National Savings, Economic Welfare, and the Structure of Taxation," NBER Working Papers 0729, National Bureau of Economic Research, Inc.
- Judd, Kenneth L, 1987. "A Dynamic Theory of Factor Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 42-48, May.
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