NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cross-Border Tax Externalities: Are Budget Deficits Too Small?

Willem Buiter, Anne C. Sibert

NBER Working Paper No. 10110
Issued in November 2003
NBER Program(s):   IFM   PE   ME

In a dynamic optimising model with costly tax collection, a tax cut by one nation creates positive externalities for the rest of the world if initial public debt stocks are positive. By reducing tax collection costs, current tax cuts boost the resources available for current private consumption, lowering the global interest rate. This pecuniary externality benefits other countries because it reduces the tax collection costs for foreign governments of current and future debt service. In the non-cooperative equilibrium, nationalistic governments do not allow for the effect of lower domestic taxes on debt service costs abroad. Taxes are too high and government budget deficits too low compared to the global cooperative equilibrium. Even in the cooperative equilibrium complete tax smoothing is not optimal: current taxes will be lower than future taxes.

download in pdf format
   (339 K)

email paper

This paper is available as PDF (339 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10110

 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us