The Economic Studies Quarterly
Online ISSN : 2185-4416
Print ISSN : 0557-109X
ISSN-L : 0557-109X
BUDGET DEFICITS, TIME PREFERENCE, AND THE EXTERNAL DEFICITS
SHUANGLIN LIN
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ジャーナル フリー

1994 年 45 巻 4 号 p. 289-305

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This paper studies the effects of budget deficits in a two-country OG model where the rates of time preference differ across countries. It is shown that time preference plays an important role in the determination of the effects of budget deficits on the trade and current account deficits. If the time preferences are identical, then a domestic tax-increase will unambiguously increase its trade surplus, and will decrease (increase) its current account surplus when the real interest rate is greater (less) than the growth rate; but if the time preferences are not identical, then a domestic tax-increase can yield completely different results. In addition, this paper clearly demonstrates that a tax-increase will unambiguously lower the real interest rate.

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© The Japanese Economic Association
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