Bilateral Tax Treaties and GDP Comovement

28 Pages Posted: 7 Apr 2017

See all articles by Nicholas Sly

Nicholas Sly

Federal Reserve Bank of Kansas City

Caroline Weber

University of Oregon - Department of Economics

Date Written: May 2017

Abstract

Using a 30‐year panel of quarterly gross domestic product (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 half 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.

Suggested Citation

Sly, Nicholas and Weber, Caroline, Bilateral Tax Treaties and GDP Comovement (May 2017). Review of International Economics, Vol. 25, Issue 2, pp. 292-319, 2017. Available at SSRN: https://ssrn.com/abstract=2946564 or http://dx.doi.org/10.1111/roie.12267

Nicholas Sly (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Caroline Weber

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

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