Winners and losers from reducing global imbalances

Jacek Rothert, Andy Glover and Ayşe Kabukçuoğlu Dur

No 80, GRAPE Working Papers from GRAPE Group for Research in Applied Economics

Abstract: We highlight the welfare effect of policies that balance global current accounts in the face of uninsurable income risk and borrowing constraints. Subsidizing savings in debtor economies reduces imbalances and raises the welfare of almost all citizens by increasing world-wide capital, raising wages, and improving insurance for low-wealth households. However, the same balancing of current accounts is achieved by taxing savings in lender economies, but hurts most households by reducing capital. We conclude that balancing global imbalances should not be a goal unto itself, but may be a by-product of raising investment rates, especially in debtor countries.

Keywords: Global Imbalances; Incomplete Markets; Heterogeneity (search for similar items in EconPapers)
JEL-codes: E2 E44 F32 F36 F4 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-ifn, nep-int and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fme:wpaper:80

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