Government Budget Deficits in Large Open Economies

38 Pages Posted: 6 Jun 2011

See all articles by Willem H. Buiter

Willem H. Buiter

Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Columbia University; Independent Economic Adviser; Independent

Anne Sibert

Birkbeck, University of London; Centre for Economic Policy Research (CEPR)

Date Written: May 31, 2011

Abstract

Large and growing levels of public debt in the United States, United Kingdom, Japan and the Euro Area raise new interest in the cross-country effects of a large open economy’s deficits. We consider a dynamic optimizing model with costly tax collection and exogenously given public spending and initial debt. We ask whether the externalizes associated with an individual country’s deficits are positive or negative. We characterize the path of taxes in the Nash equilibrium where policy makers act nationalistically and compare this outcome to the global optimal outcome.

Keywords: fiscal policy, international policy coordination, optimal taxation

JEL Classification: E620, F420, H210

Suggested Citation

Buiter, Willem H. and Sibert, Anne, Government Budget Deficits in Large Open Economies (May 31, 2011). CESifo Working Paper Series No. 3476, Available at SSRN: https://ssrn.com/abstract=1858636 or http://dx.doi.org/10.2139/ssrn.1858636

Willem H. Buiter

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Columbia University ( email )

420 West 118th Street
New York, NY
United States

Independent Economic Adviser ( email )

Independent ( email )

Anne Sibert (Contact Author)

Birkbeck, University of London ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6420 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.ems.bbk.ac.uk/faculty/sibert/index_html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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