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Fiscal shocks and spillovers in a dynamic two-country model

Jingchao Li ()
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Jingchao Li: East China University of Science and Technology

International Tax and Public Finance, 2022, vol. 29, issue 1, No 3, 53-83

Abstract: Abstract This paper examines the cross-border effects of domestic fiscal shocks on foreign economic activities by constructing a two-country general equilibrium model. The model yields two main results by comparing four alternative fiscal shocks: government spending, the capital income tax rate, the labor income tax rate, and the consumption tax rate. First, domestic fiscal shocks can generate sizable spillovers abroad. Second, once the size of each fiscal shock is normalized to achieve an equal change in government revenue, the spillover effects of different fiscal shocks on the foreign economic variables are qualitatively similar.

Keywords: Government spending; Tax rate; Cross-border spillovers (search for similar items in EconPapers)
JEL-codes: E62 F40 H50 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10797-020-09651-0

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