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International Effects of Tax Reforms

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  • Frenkel, Jacob A
  • Razin, Assaf

Abstract

In an open economy with international capital flows, there is an equivalence relation between income tax, consumption tax, international borrowing tax, and an external interest earning tax. This paper analyzes tax reform involving shifts between income and consumption taxes in this setting. It is shown that the real effects of such revenue-neutral tax reform depend critically on the country's current account position and the nature of the reform. In particular, whether the world interest rate rises or falls as a consequence of a budget deficit depends on the tax system in force. The analysis provides a clear rationale for the international coordination of tax policies. Copyright 1989 by Royal Economic Society.

Suggested Citation

  • Frenkel, Jacob A & Razin, Assaf, 1989. "International Effects of Tax Reforms," Economic Journal, Royal Economic Society, vol. 99(395), pages 38-58, Supplemen.
    • Handle: RePEc:ecj:econjl:v:99:y:1989:i:395:p:38-58
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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. Marco Mele, 2019. "On Italy¡¯s Flat Tax Needs and Sustainability of the Public Budget," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 1-9, December.
    4. van der Ploeg, F., 1990. "Budgetary aspects of economic and monetary integration in Europe," Discussion Paper 1990-37, Tilburg University, Center for Economic Research.
    5. 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.
    6. 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.
    7. Raymond G. Batina, 1999. "A Differential Incidence Analysis of a Tax Reform From an Income Tax to a Consumption Tax in the Presence of Bequests," Public Finance Review, , vol. 27(3), pages 353-370, May.
    8. Jacob A. Frenkel & Assaf Razin & Steve Symansky, 1991. "International VAT Harmonization: Economic Effects," NBER Working Papers 3656, National Bureau of Economic Research, Inc.
    9. Juha Tervala & Mr. Giovanni Ganelli, 2008. "Tax Reforms, “Free Lunches”, and “Cheap Lunches” in Open Economies," IMF Working Papers 2008/227, International Monetary Fund.
    10. Lin, Shuanglin, 1999. "Tax reform and external balance," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 891-909, December.
    11. Ayoki, Milton, 2017. "Estimating the Revenue Impacts of Tax Harmonisation," MPRA Paper 83548, University Library of Munich, Germany.
    12. Shuanglin Lin, 1998. "Taxing Consumption in an Open Economy," Public Finance Review, , vol. 26(3), pages 250-269, May.
    13. Alberto Giovannini, 1987. "International Capital Mobility and Tax Evasion," NBER Working Papers 2460, National Bureau of Economic Research, Inc.

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