Working Paper: CEPR ID: DP419
Authors: Willem H. Buiter; Kenneth M. Kletzer
Abstract: This paper uses a two-country overlapping generations model to study the international transmission of fiscal policy among open interdependent economies under free international capital mobility. With only lump-sum taxes and transfers, international transmission involves only pecuniary externalities: barring dynamic inefficiency, only distributional issues (intergenerational and international) are involved. With age-specific taxes and transfers, the ability to run deficits and issue debt does not enhance the choice set of the governments. Source-based taxes on the rentals from capital and residence-based taxes on all property income are also studi.
Keywords: interdependence; fiscal policy; coordination; externality
JEL Codes: 431; 441; 411; 024; 111
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal actions in one country (H39) | Changes in interest rates (E43) |
| Changes in interest rates (E43) | Private consumption (D19) |
| Fiscal actions in one country (H39) | Private consumption (D19) |
| Public borrowing (H74) | Private consumption (D19) |