Balanced-budget income taxes and aggregate stability in a small open economy

• 成果类型: Article
• 署名作者: Huang, Kevin X. D.; Meng, Qinglai; Xue, Jianpo
• 署名单位: Vanderbilt University; Oregon State University; Renmin University of China
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2016.12.004
• 发表日期: 2017
• 页码: 90-101
• 关键词: small open economy; Balanced-budget rules; Income taxes; Saddle-path stability; self-fulfilling expectations; indeterminacy

摘要

In a closed economy, a balanced-budget fiscal policy rule with endogenous income tax rates can generate aggregate instability due to self-fulfilling expectations (e.g., Schmitt-Grohe and Uribe, 1997). This paper shows, both analytically and numerically, that beliefs-driven aggregate instability associated with such a balanced-budget rule is less of a problem in a small open economy integrated in the world asset and goods markets. This is because cross-border capital flows and endogenous international price adjustments produce income effects that reduce the likelihood of sunspot equilibria. From a policy perspective, our results relieve possible concerns that balanced-budget rules and reliance on income taxes to achieve budget objective could have destabilizing effects on the economy. (C) 2016 Elsevier B.V. All rights reserved.