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Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

Author

Listed:
  • Bianconi, Marcelo

    (Department of Economics, Tufts University, Medford, MA, USA)

  • Fisher, Walter H.

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

Abstract

We analyze the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on the long term fiscal liability. In particular, shifts in capital income taxes can lead to dynamic scoring effects through the evolution of foreign debt. We show that a combination of tax-cumexpenditure, or government expenditure alone can balance the long term government budget constraint. However, for certain combinations of parameter values, the capital income tax alone cannot balance the intertemporal budget.

Suggested Citation

  • Bianconi, Marcelo & Fisher, Walter H., 2011. "Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies," Economics Series 271, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:271
    as

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    File URL: http://www.ihs.ac.at/publications/eco/es-271.pdf
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    References listed on IDEAS

    as
    1. Slemrod,Joel, 1997. "Tax Progressivity and Income Inequality," Cambridge Books, Cambridge University Press, number 9780521587761, December.
    2. Bruce, Neil & Turnovsky, Stephen J, 1999. "Budget Balance, Welfare, and the Growth Rate: "Dynamic Scoring" of the Long-Run Government Budget," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 162-186, May.
    3. George J. Hall & Thomas J. Sargent, 2011. "Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 192-214, July.
    4. Bianconi, Marcelo & Fisher, Walter H., 2005. "Intertemporal budget policies and macroeconomic adjustment in a small open economy," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 1-17, February.
    5. Bianconi, Marcelo, 1999. "Intertemporal budget policies in an endogenous growth model with nominal assets," International Review of Economics & Finance, Elsevier, vol. 8(1), pages 25-43, January.
    6. Agell, Jonas & Persson, Mats, 2001. "On the analytics of the dynamic Laffer curve," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 397-414, October.
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    11. Ireland, Peter N., 1994. "Supply-side economics and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 559-571, June.
    12. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    13. Jonathan David Ostry & Atish R. Ghosh & Jun I Kim & Mahvash S Qureshi, 2010. "Fiscal Space," IMF Staff Position Notes 2010/11, International Monetary Fund.
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    More about this item

    Keywords

    Government budget constraint; nominal assets; capital income tax;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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