Taxes and International Risk Sharing

Brendan Epstein, Rahul Mukherjee and Shanthi Ramnath

No 1110, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the extent to which differences in international tax rates may account for the small correlations of per capita consumption fluctuations across countries. Theory implies a close relationship between relative consumption growth, and consumption and capital income tax rate differentials. We find strong empirical evidence for this relationship. Idiosyncratic output fluctuations account for the majority of cross country consumption growth variability, but trends in tax differentials are informative about the dynamic evolution of international risk sharing. In particular, adjusting for capital taxes reveals an intuitive positive relationship between financial connectedness and risk sharing that is absent in baseline measures.

Keywords: International risk sharing; business cycle accounting; taxes (search for similar items in EconPapers)
JEL-codes: F41 F44 H29 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-06-09
New Economics Papers: this item is included in nep-acc, nep-opm, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Taxes and international risk sharing (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1110

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