Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

Marcelo Bianconi and Walter Fisher

No 271, Economics Series from Institute for Advanced Studies

Abstract: We analyze the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on the long term fiscal liability. In particular, shifts in capital income taxes can lead to dynamic scoring effects through the evolution of foreign debt. We show that a combination of tax-cumexpenditure, or government expenditure alone can balance the long term government budget constraint. However, for certain combinations of parameter values, the capital income tax alone cannot balance the intertemporal budget.

Keywords: Government budget constraint; nominal assets; capital income tax (search for similar items in EconPapers)
JEL-codes: E5 E6 F4 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2011-06
New Economics Papers: this item is included in nep-cba and nep-mac
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https://irihs.ihs.ac.at/id/eprint/2066 First version, 2011 (application/pdf)

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Journal Article: Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies (2014)
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