Arbeitspapier
Tax and spending shocks in the open economy: Are the deficits twins?
We present evidence on the open economy consequences of US fiscal policy shocks identified through proxy-instrumental variables. Tax shocks and government spending shocks that raise the government budget deficit lead to persistent current account deficits. In particular, the negative response of the current account to exogenous tax reductions through a surge in the demand for imports is among the strongest and most precisely estimated effects. Moreover, we find that the reduction of the current account is amplified when the tax reduction is due to lower personal income taxes and when the government increases its consumption expenditures. Historically, a much larger share of current account dynamics has been due to tax shocks than to government spending shocks.
- Language
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Englisch
- Bibliographic citation
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Series: DIW Discussion Papers ; No. 1821
- Classification
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Wirtschaft
Business Fluctuations; Cycles
Fiscal Policy
Open Economy Macroeconomics
- Subject
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tax policy
government spending
proxy-vector autoregressions
current account,twin deficits
- Event
-
Geistige Schöpfung
- (who)
-
Klein, Mathias
Linnemann, Ludger
- Event
-
Veröffentlichung
- (who)
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Deutsches Institut für Wirtschaftsforschung (DIW)
- (where)
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Berlin
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Klein, Mathias
- Linnemann, Ludger
- Deutsches Institut für Wirtschaftsforschung (DIW)
Time of origin
- 2019
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