Tax Reforms, ""Free Lunches"", and ""Cheap Lunches"" in Open Economies
Object category:
Elektronische Ressource
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Publisher:
International Monetary Fund
Ort:
Washington, D.C
Date:
2008
Language:
Englisch
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Abstract:
This paper focuses on the macroeconomic and budgetary impact of tax reforms in a New Keynesian two-country model. Our results show that both income and consumption unilateral tax rate reductions do not constitute a ""free lunch"", in the sense that they have negative budgetary consequences for the country which implements them. In addition, the degree of self-financing implied by our model is in the 81⁄2-24 percent range. Since the degree of self-financing estimated in previous literature was larger, we conclude that in our model not only the ""lunch"" is not ""free"", but is also not that ""cheap"". A comparison of alternative (income-tax versus consumption-tax based) fiscal stimulus packages shows that consumption tax cuts imply a larger short-run impact on domestic output but the income tax cuts stimulate the domestic economy more in the long run. We also look at the implications of a revenue-neutral tax reform in which consumption taxes are increased to compensate for lower income tax collection
Object text:
Tervala, Juha
Online-Ausg.
Online-Ausg.
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Created:
2023-04-13
Last changed:
2023-01-26
Added to portal:
2023-04-13
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