The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper highlights key issues pertinent for the understanding of international effects of domestic tax policies and of international tax harmonization. The analytical framework adopts the saving-investment balance approach to the analysis of international economic interdependence focusing on income, consumption, and international borrowing. A simulation model is developed that is richer in structure than the two period analytical model. The analytical and simulation frameworks are used to analyze the consequences of revenue-neutral conversions between income and consumption (VAT) tax systems, the international effects of budget deficits and public-debt management, and the effects of international tax harmonization. We demonstrate that the effects of such changes in the structure of taxes depend critically on international differences in saving and investment propensities.