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Indirect Tax Initiatives and Global Rebalancing

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  • Chunding Li
  • John Whalley

Abstract

This paper discusses how joint cross country indirect tax initiatives can be used to achieve global rebalancing. We suggest that if China and Germany (as major surplus countries) switch their present VAT systems from a destination principle to an origin principle, and the US (as the major deficit country) adopts a VAT on a destination principle VAT, jointly these actions can significantly reduce the three countries’ joint imbalances and so contribute to global rebalancing. We use a numerical general equilibrium model with a monetary structure incorporating inside money to capture endogeneity of trade imbalances, and to also investigate the potential impacts of such initiatives. These confirm that VAT structures are not only good for global rebalancing but also the changes we consider are beneficial for welfare and revenue collection. Our research is aimed to inject new ideas to the present global rebalancing debate. (JEL codes: F17; H21; C68)

Suggested Citation

  • Chunding Li & John Whalley, 2017. "Indirect Tax Initiatives and Global Rebalancing," CESifo Economic Studies, CESifo Group, vol. 63(1), pages 24-44.
    • Handle: RePEc:oup:cesifo:v:63:y:2017:i:1:p:24-44.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifw013
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    References listed on IDEAS

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    1. Genser, Bernd, 1994. "A generalized equivalence property of mixed international VAT regimes," Discussion Papers, Series II 241, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
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    3. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
    4. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, October.
    5. Whalley, John, 1979. "Uniform domestic tax rates, trade distortions and economic integration," Journal of Public Economics, Elsevier, vol. 11(2), pages 213-221, March.
    6. Grossman, Gene M., 1980. "Border tax adjustments: Do they distort trade?," Journal of International Economics, Elsevier, vol. 10(1), pages 117-128, February.
    7. Whalley John & Yu Jun & Zhang Shunming, 2012. "Trade Retaliation in a Monetary-Trade Model," Global Economy Journal, De Gruyter, vol. 12(1), pages 1-29, March.
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    Cited by:

    1. Jacek Rothert & Andy Glover & Ayse Kabukcuoglu Dur, 2023. "Winners and losers from reducing global imbalances," GRAPE Working Papers 80, GRAPE Group for Research in Applied Economics.
    2. Zhang, Sufang & He, Yongxiu, 2013. "Analysis on the development and policy of solar PV power in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 21(C), pages 393-401.
    3. Ruhang, Xu, 2016. "Characteristics and prospective of China׳s PV development route: Based on data of world PV industry 2000–2010," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 1032-1043.
    4. Karl Farmer, 2016. "The Intertemporal Equilibrium Modeling of Intra-EMU and Global Trade Imbalances," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 377-395, November.

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    More about this item

    Keywords

    rebalancing; value-added tax; destination principle; origin principle;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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