Indirect Tax Initiatives and Global Rebalancing

33 Pages Posted: 17 Mar 2012 Last revised: 19 Jun 2022

See all articles by Li Chunding

Li Chunding

affiliation not provided to SSRN

John Whalley

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for International Governance and Innovation (CIGI)

Date Written: March 2012

Abstract

This paper discusses how joint cross country indirect tax initiatives can be used to achieve global rebalancing. This is potentially an important development for G20 discussions which thus far have centered on exchange rates as the instruments to achieve rebalancing. We suggest that if China and Germany (as major surplus countries) switch their present VAT systems from a destination principle to an origin principle, and the US (as the major deficit country) adopts a VAT on a destination principle VAT, jointly these actions can significantly reduce the three countries' joint imbalances and so contribute to global rebalancing. We use a numerical general equilibrium model with a monetary structure incorporating inside money to capture endogeneity of trade imbalances, and to also investigate the potential impacts of such initiatives. These confirm that VAT structures are not only good for global rebalancing but also the changes we consider are beneficial for welfare and revenue collection. Our research is aimed to inject new ideas to the present global rebalancing debate.

Suggested Citation

Chunding, Li and Whalley, John, Indirect Tax Initiatives and Global Rebalancing (March 2012). NBER Working Paper No. w17919, Available at SSRN: https://ssrn.com/abstract=2025306

Li Chunding (Contact Author)

affiliation not provided to SSRN

John Whalley

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada
519-661-3509, ext. 83509 (Phone)
519-661-3666 (Fax)

HOME PAGE: http://www.ssc.uwo.ca/economics/faculty/

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Centre for International Governance and Innovation (CIGI) ( email )

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Waterloo, Ontario N2L 6C2
Canada

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