Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

Review of International Economics, 22(1), 116-130, February 2014

35 Pages Posted: 8 Jun 2011 Last revised: 30 Apr 2015

See all articles by Marcelo Bianconi

Marcelo Bianconi

Tufts University - Department of Economics

Walter H. Fisher

Institute for Advanced Studies (IHS) - Department of Economics & Finance

Date Written: June 5, 2011

Abstract

We analyze the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on the long term fiscal liability. In particular, shifts in capital income taxes can lead to dynamic scoring effects through the evolution of foreign debt. We show that a combination of tax-cumexpenditure, or government expenditure alone can balance the long term government budget constraint. However, for certain combinations of parameter values, the capital income tax alone cannot balance the intertemporal budget.

Keywords: government budget constraint, nominal assets, capital income tax

JEL Classification: E5, E6, F4

Suggested Citation

Bianconi, Marcelo and Fisher, Walter H., Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies (June 5, 2011). Review of International Economics, 22(1), 116-130, February 2014, Available at SSRN: https://ssrn.com/abstract=1843236 or http://dx.doi.org/10.2139/ssrn.1843236

Marcelo Bianconi (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2677 (Phone)

HOME PAGE: http://www.tufts.edu/~mbiancon

Walter H. Fisher

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

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