TY  - JOUR
AU  - Stockman,Alan C.
TI  - Fiscal Policies and International Financial Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1961
PY  - 1989
Y2  - May 1989
UR  - http://www.nber.org/papers/w1961
L1  - http://www.nber.org/papers/w1961.pdf
N1  - Author contact info:
Alan C. Stockman
Department of Economics
University of Rochester
Rochester, NY  14627-0156
Tel: 585/275-7214
Fax: 585/256-2309
E-Mail: N/A user is deceased
M1  - published as Alan C. Stockman. "Fiscal Policies and International Financial Markets," in Jacob A. Frenkel, ed., "International Aspects of Fiscal Policies" University of Chicago Press (1988)

AB  - This paper examines the effects of fiscal policies in an open economy when international financial markets are well developed. Consumers use these markets to hedge against the risk of uncertain future changes in government policies. These portfolio allocations alter the effects of changes in government policies, if and when they occur, as compared to a world with more limited financial markets. Three examples are discussed. The first involves a change in (productive) government spending, financed by a change in lump-sum taxes, in a large open economy with two goods. The second example concerns the effects of temporary changes in distorting taxes. The final example concerns the open-economy effects of changes in government deficits, due to changes in lump-sum taxes, without Ricardian equivalence. In each example the existence of opportunities to trade on well-developed international financial markets is shown to alter, in important ways, the effects of changes in government policies. The empirical significance of these differences should grow as international financial markets continue to develop in breadth and sophistication.
ER  -