Do tax cuts generate twin deficits? A multi-country analysis

Martin Boileau and Michel Normandin ()

Canadian Journal of Economics, 2012, vol. 45, issue 4, 1667-1699

Abstract: We study the effects of tax shocks on the budget and external deficits for 16 industrialized countries over the post-1970 period. Our structural approach is based on a small open economy model where a tax cut affects the external deficit by two distinct channels. The demographic channel works through the overlapping-generation structure of the model. The forecasting channel works through the dynamic structure of the model. Our empirical analysis documents that tax shocks generate twin deficits, and that both channels play important roles in explaining the positive comovement between the budget and external deficits.

JEL-codes: E62 F32 F41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Working Paper: Do Tax Cuts Generate Twin Deficits? A Multi-Country Analysis (2008)
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