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International Effects of Tax Reforms

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  • Jacob A. Frenkel
  • Assaf Razin

Abstract

This paper highlights the significance of open-economy considerations in the analysis of tax reforms. It focuses on domestic and international consequences of revenue-neutral conversions between income and value-added tax systems. The principal conclusion of this investigation is that the direction of changes in the world rate of interest, the domestic tax-adjusted rate of interest, domestic and foreign investment, growth rates of consumption, and other key macroeconomic variables consequent on revenue-neutral tax reforms depend on whether the country adopting the tax reform runs a surplus or a deficit in the current account of its balance of payments. For example, a conversion from an income to a value-added tax system lowers the world rate of interest if the country adopting the reform runs a surplus in the current account of its balance of payments, but raises the world rate of interest if its current account is in a deficit. The paper also examines the implications of such reforms in the presence of direct foreign investment and considers alternative specifications of tax treatments, one based on the source of income, and the other on the country of residence of the taxpayer. It demonstrates the robustness of the key propositions to these alternatives.

Suggested Citation

  • Jacob A. Frenkel & Assaf Razin, 1989. "International Effects of Tax Reforms," NBER Working Papers 2873, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2873
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    References listed on IDEAS

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    1. Alan J. Auerbach & Laurence J. Kotlikoff, 1983. "National Savings, Economic Welfare, and the Structure of Taxation," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 459-498 National Bureau of Economic Research, Inc.
    2. Judd, Kenneth L, 1987. "A Dynamic Theory of Factor Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 42-48, May.
    3. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
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    Cited by:

    1. A. Bovenberg, 1994. "Destination- and origin-based taxation under international capital mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 247-273, October.
    2. Enrique G. Mendoza, 2001. "The International Macroeconomics of Taxation and the Case Against European Tax Harmonization," NBER Working Papers 8217, National Bureau of Economic Research, Inc.
    3. van der Ploeg, F., 1990. "Macroeconomic policy coordination during the various phases of economic and monetary integration in Europe," Discussion Paper 1990-61, Tilburg University, Center for Economic Research.
    4. Lin, Shuanglin, 1999. "Tax reform and external balance," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 891-909, December.
    5. van der Ploeg, F., 1990. "Budgetary aspects of economic and monetary integration in Europe," Discussion Paper 1990-37, Tilburg University, Center for Economic Research.
    6. Giovanni Ganelli & Juha Tervala, 2014. "Dynamic Scoring in Open Economies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(1), pages 31-66, March.
    7. Jacob A. Frenkel & Steven A. Symansky & Assaf Razin, 1991. "International Vat Harmonization; Economic Effects," IMF Working Papers 91/22, International Monetary Fund.
    8. Ayoki, Milton, 2017. "Estimating the Revenue Impacts of Tax Harmonisation," MPRA Paper 83548, University Library of Munich, Germany.
    9. Alberto Giovannini, 1987. "International Capital Mobility and Tax Evasion," NBER Working Papers 2460, National Bureau of Economic Research, Inc.
    10. F. Van der Ploeg, 1992. "Coordinación de políticas macroeconómicas en las diferentes etapas de la integración económica y monetaria en Europa," EKONOMIAZ. Revista vasca de Economía, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 24(03), pages 240-286.

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