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 the significance of open-economy considerations in the analysis of tax reforms. It focuses on domestic and international consequences of revenue-neutral conversion between income and value-added tax systems. The principal result is that the direction of changes in key macroeconomic variables consequent on such tax conversions depends critically on the current account position. For example, a conversion from an income to a value-added tax system lowers the world interest rate if the country adopting the reform runs a surplus in the current account of its balance of payments, and vice versa.