TY - JOUR AU - Frenkel,Jacob A. AU - Razin,Assaf AU - Symansky,Steve TI - International Spillovers of Taxation JF - National Bureau of Economic Research Working Paper Series VL - No. 2927 PY - 1990 Y2 - July 1990 UR - http://www.nber.org/papers/w2927 L1 - http://www.nber.org/papers/w2927.pdf N1 - Author contact info: Jacob Frenkel Dr. Jacob A. Frenkel Chairman, JPMorgan Chase International 270 Park Ave 46th floor New York, NY 10017 Tel: +1 212 270 2393 Fax: +1 212 270 2397 E-Mail: jacob.frenkel@jpmchase.com Assaf Razin Department of Economics Cornell University Uris 422 Ithaca, NY 14853 Tel: 607/255-9625 Fax: 607/255-2818 E-Mail: ar256@cornell.edu M1 - published as Jacob Frenkel, Assaf Razin, Steve Symansky. "International Spillovers of Taxation," in Assaf Razin and Joel Slemrod, editors, "Taxation in the Global Economy" University of Chicago Press, 1990 (1990) AB - This paper deals with the international effects of taxation. Tax policies have profound effects on the temporal composition and on the intertemporal evolution of the macro economy. The analysis highlights key issues pertinent for the understanding of international effects of domestic tax policies and of international tax harmonization. The analytical framework adopts the saving-investment balance approach to the analysis of international economic interdependence and includes a detailed specification of public and private sector behavior focusing on the roles played by taxes on income, consumption, and international borrowing. We present stylized facts on the average consumption and income tax rates for the seven major industrial countries. They reveal large international diversity of tax rates and tax structures. The analytical framework is used to analyze the consequences of revenue-neutral conversions between income and consumption (VAT) tax systems. We demonstrate analytically that the effects of such changes in the structure of taxes depend critically on international differences in saving and investment propensities which in turn govern the time profile of the current account of the balance of payments. The key results are also illustrated by means of dynamic simulations. We then examine the international effects of budget deficits and public-debt management and demonstrate analytically as well as by means of dynamic simulations that these effects depend critically on whether the government manages its deficit through alterations in income or consumption (VAT) taxes. Finally, motivated by proposals for tax harmonization associated with the single market in Europe of 1992, we consider the effects of international tax harmonization. The main results, demonstrate that, in analogy with the effects of tax conversions, the effect of harmonization depends critically on the inter-country differences in saving and investment propensities. These differences are shown to yield conflicts of interests in the tax harmonization program. ER -