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Research Working Paper
Global tax policy and the synchronization of business cycles
Using a 30-year panel of quarterly GDP ﬂuctuations from of a broad set of countries, we demonstrate that the signing of a bilateral tax treaty increases the comovement of treaty partners' business cycles by 1/2 a standard deviation. This eﬀect of ﬁscal policy is as large as the eﬀect of trade linkages on comovement, and stronger than the eﬀects of several other common ﬁnancial and investment linkages. We also show that bilateral tax treaties increase comovement in shocks to nations’ GDP trends, demonstrating the permanent eﬀects of coordination on ﬁscal policy rules. We estimate trend and business cycle components of nations' output series using an unobserved-components model in order to measure comovement between countries, and then estimate the impact of tax treaties using generalized estimating equations.
Cite this item
Nicholas Sly & Caroline Weber, Global tax policy and the synchronization of business cycles, Federal Reserve Bank of Kansas City, Research Working Paper RWP 15-7, 01 Aug 2015.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
Keywords: Bilateral Tax Treaties; Fiscal policy; GDP; Tax treaties
This item with handle RePEc:fip:fedkrw:rwp15-07
is also listed on EconPapers
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