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Title: Do Tax Cuts Generate Twin Deficits? A Multi-Country Analysis
Authors: Boileau, Martin
Normandin, Michel
Keywords: Budget Deficit
External Deficit
Fiscal Policy
Overlapping Generations
Issue Date: 2008-10
Series/Report no.: Cahiers du CIRPÉE;08-32
Abstract: We study the effects of tax shocks on the budget and external deficits for 16 industrialized countries over the post-1975 period. Our structural approach is based on a tractable small open-economy model where a tax cut innovation generates a budget deficit. In turn, the budget deficit affects the external deficit by two distinct channels. The demographic channel works through the overlapping-generation structure of the model. The forecasting channel works through the dynamic structure of the model. Our empirical analysis documents that tax shocks generate significant positive comovements between the budget and external deficits. We also find that both the demographic and forecasting channels are important to explain the comovements.
URI: http://132.203.59.36/CIRPEE/cahierscirpee/2008/files/CIRPEE08-32.pdf
https://depot.erudit.org/id/002940dd
Appears in Collections:Cahiers de recherche du CIRPÉE

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