Tax Policy and International Competitiveness
In: International Aspects of Fiscal Policies
This paper examines the interactions between tax policy, international capitol mobility, and international competitiveness. It demonstrates that tax policies which stimulate national investment without affecting national savings must inevitably lead to deterioration in a country's trade balance in the short and intermediate run. This conclusion, which contradicts a great deal of popular rhetoric highlights the importance of considering the macroeconomic as well as the microeconomic aspects of tax changes. Yore generally, the effects of tax policies depend critically on the extent of the international capital flows which they generate. The paper examines the issue of international capital mobility both theoretically and empirically. A variety of considerations suggest that while tax policies could generate large capital flows, governments pursue policies which tend to inhibit capital flows following tax changes. This makes the analysis of tax policies difficult.
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- Martin Feldstein & Charles Horioka, 1979.
"Domestic Savings and International Capital Flows,"
NBER Working Papers
0310, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1986.
"Capital mobility in the world economy: Theory and measurement,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 24(1), pages 55-103, January.
- Maurice Obstfeld, 1985. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
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