Document Type

Article

Publication Date

5-2012

Publication Title

American Economic Journal - Economic Policy

Abstract

This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels of development. (JEL E21, E22, E23, E62, F32, F42)

DOI

10.1257/pol.4.2.95

Included in

Finance Commons

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