Is Coordination of Fiscal Deficits Necessary?

Harry Huizinga and Søren Nielsen

No 1936, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: National budget deficits can create externalities through their effects on international interest rates. This paper examines the scope for fiscal rules restricting government borrowing for the case where government revenues (on the margin) stem from capital income taxation. There is no need to coordinate national borrowing, if governments have access to both a saving and an investment tax instrument. In the absence of a saving tax, however, national fiscal policies affect welfare abroad through the international interest rate. A reduction in first period deficits tied to increased government spending later is always welfare improving. Reducing first period deficits without further coordination of subsequent tax and spending policies will generally not improve welfare.

Keywords: Deficits; Fiscal Rules (search for similar items in EconPapers)
JEL-codes: F36 H87 (search for similar items in EconPapers)
Date: 1998-07
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Is Coordination of Fiscal Deficits Necessary? (1998)
Working Paper: Is Coordination of Fiscal Deficits Necessary? (1998)
Working Paper: Is Coordination of Fiscal Deficits Necessary?
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