Tax Reforms, 'Free Lunches', and 'Cheap Lunches' in Open Economies /

This paper focuses on the macroeconomic and budgetary impact of tax reforms in a New Keynesian two-country model. Our results show that both income and consumption unilateral tax rate reductions do not constitute a "free lunch", in the sense that they have negative budgetary consequences f...

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Bibliografiske detaljer
Hovedforfatter: Tervala, Juha
Andre forfattere: Ganelli, Giovanni
Format: Tidsskrift
Sprog:English
Udgivet: Washington, D.C. : International Monetary Fund, 2008.
Serier:IMF Working Papers; Working Paper ; No. 2008/227
Online adgang:Full text available on IMF
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245 1 0 |a Tax Reforms, 'Free Lunches', and 'Cheap Lunches' in Open Economies /  |c Juha Tervala, Giovanni Ganelli. 
264 1 |a Washington, D.C. :  |b International Monetary Fund,  |c 2008. 
300 |a 1 online resource (30 pages) 
490 1 |a IMF Working Papers 
500 |a <strong>Off-Campus Access:</strong> No User ID or Password Required 
500 |a <strong>On-Campus Access:</strong> No User ID or Password Required 
506 |a Electronic access restricted to authorized BRAC University faculty, staff and students 
520 3 |a This paper focuses on the macroeconomic and budgetary impact of tax reforms in a New Keynesian two-country model. Our results show that both income and consumption unilateral tax rate reductions do not constitute a "free lunch", in the sense that they have negative budgetary consequences for the country which implements them. In addition, the degree of self-financing implied by our model is in the 8 1\2 -24 percent range. Since the degree of self-financing estimated in previous literature was larger, we conclude that in our model not only the "lunch" is not "free", but is also not that "cheap". A comparison of alternative (income-tax versus consumption-tax based) fiscal stimulus packages shows that consumption tax cuts imply a larger short-run impact on domestic output but the income tax cuts stimulate the domestic economy more in the long run. We also look at the implications of a revenue-neutral tax reform in which consumption taxes are increased to compensate for lower income tax collection. 
538 |a Mode of access: Internet 
700 1 |a Ganelli, Giovanni. 
830 0 |a IMF Working Papers; Working Paper ;  |v No. 2008/227 
856 4 0 |z Full text available on IMF  |u http://elibrary.imf.org/view/journals/001/2008/227/001.2008.issue-227-en.xml  |z IMF e-Library