|
|
Article: Budget deficits, corporate income taxes, and the current account.
- Article from:
- Journal of Money, Credit & Banking
- Article date:
- May 1, 1995
- Author:
CopyrightCOPYRIGHT 1995 Ohio State University Press. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
|
The conventional view about the effects of budget deficits in finite horizon models is that, because agents are finitely lived, future taxes and transfers are discounted at a higher rate than the interest on government debt. Therefore, both anticipated and unanticipated deficits lead to increased wealth and consumption, causing a current account deficit (see, for example, Frenkel and Razin 1986a). This view is based on the assumption that deficits imply higher future taxes on personal incomes.
The empirical literature, as summarized by the U.S. Treasury Department (1984), Barro (1989), and Seater (1993) finds little evidence in favor of these views. The need to study ...