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Should Foreign Capital Be Taxed for Fiscal Expansion?


  • Zeng, Jinli

    () (The National University of Singapore)

  • Ka-yiu Fung, Michael

    (The Chinese University of Hong Kong)


This paper studies the income distribution implications of a fiscal expansion financed by foreign capital in a small open economy. Utilizing a multi-sector gen - eral equilibrium model, four results are derived for a stable equilibrium: (1) domestic private agents’ welfare may be reduced by fiscal expansion even if agents do not finance the expansion; (2) the fiscal authority’s welfare may be reduced by fiscal expansion even if more resources are allocated for the authority’s consump - tion; (3) the after-tax rental income of the foreign capital’s owners may be increased even if they finance the fiscal expansion; and (4) fiscal spending may be contractionary for domestic residents (private agents and fiscal authority) even if the spending is financed by non-residents.

Suggested Citation

  • Zeng, Jinli & Ka-yiu Fung, Michael, 1997. "Should Foreign Capital Be Taxed for Fiscal Expansion?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 388-401.
  • Handle: RePEc:ris:integr:0055

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    More about this item


    Foreign; Capital;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General


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