Cover IMF Working Papers
A New-Open-Economy Macro Model for Fiscal Policy Evaluation
Author: Mr. Dirk V Muir, Mr. Douglas Laxton, Mr. Dennis P Botman, and Mr. Andrei Romanov
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 045
Language:
English
Publication Date:
01 Feb 2006
DOI:
https://doi.org/10.5089/9781451863055.001
ISBN:
9781451863055
ISSN:
1018-5941
Pages:
46
Keywords:
WP; open economy; Finite lives; distortionary taxes; rule-of-thumb consumers; government debt; home economy; fiscal policy; rule-of-thumb consumer; crowding-out effect; debt ratio; consumption function; Real interest rates; Labor taxes; Consumption; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (440.5 KB) Download Epub
We develop a New-Open-Economy-Macro model in which Ricardian equivalence does not hold because of (i) distortionary labor and corporate income taxation; (ii) limited asset market participation; and (iii) because the overlapping-generations structure results in a disconnect between current and future generations. We consider a permanent increase in government debt following a cut in labor or corporate income taxes in a small and large open economy. We analyze the sensitivity of the results to the key structural parameters of the model and argue that under plausible assumptions there will be significant crowding-out effects associated with permanent increases in government debt.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund