International spillover effects of U.S. tax reforms: Evidence from Germany

Désirée Christofzik and Steffen Elstner ()

No 08/2018, Working Papers from German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung

Abstract: This paper explores the international transmission of U.S. tax shocks and provides evidence for the German economy. Using structural vector autoregressions, we find that after a U.S. tax cut, German GDP increases moderately. While higher U.S. demand stimulates German exports, a deterioration of price competitiveness lowers this positive growth impulse. The current account increases significantly. Surprisingly, German prices fall as domestic companies reduce unit labor costs. The resulting increase of the real interest rate dampens domestic demand. German tax policy shows an opposite reaction to U.S. tax policy. The latter result, however, is driven by the decade of the 1970s. We find that significant changes in the transmission channels arise by distinguishing between different types of U.S. tax reforms. In particular, in contrast to U.S. personal income tax reforms, changes in the corporate income tax cause a depreciation of the German real effective exchange rate.

Keywords: fiscal policy; tax policy; international spillovers; structural vector autoregressions (search for similar items in EconPapers)
JEL-codes: E32 E62 F44 H20 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec, nep-mac, nep-opm and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: International spillover effects of U.S. tax reforms: evidence from Germany (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:svrwwp:082018

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