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Budget Deficits, Corporate Income Taxes, and the Current Account


  • Mansoorian, Arman


This paper studies the effects of budget deficits financed by taxing corporate incomes. As households are finitely lived, transfers and taxes on personal incomes are discounted at a higher rate than the interest on government debt. As corporations are infinitely lived, taxes on corporations are discounted at the same rate as the interest on government debt. Thus, unanticipated deficits financed by taxing corporate incomes are neutral. Anticipated deficits financed by taxing corporations cause a current account surplus, as transfers are then discounted at a higher rate than the taxes. Shifting taxes from households to corporations causes a current account surplus. Copyright 1995 by Ohio State University Press.

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  • Mansoorian, Arman, 1995. "Budget Deficits, Corporate Income Taxes, and the Current Account," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 378-388, May.
  • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:378-88

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    References listed on IDEAS

    1. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-1230, December.
    2. Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 317-339, June.
    3. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1991. "Optimal Fiscal and Monetary Policy: Some Recent Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 519-539, August.
    4. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
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