Spending, Taxes and Real Exchange Rates

32 Pages Posted: 15 Feb 2006

See all articles by Jacob A. Frenkel

Jacob A. Frenkel

Merrill Lynch & Co. - Sovereign Advisory Group and Global Financial Institutions Group; National Bureau of Economic Research (NBER)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: September 22, 1987

Abstract

This paper develops a rigorous analytical framework suitable for the analysis of the effects of spending and tax policies on the world economy. It modifies the conventional conclusions according to which a budget deficit or a temporary current rise in government spending typically tend to raise interest rates. It is shown that by incorporating nontradable goods and distortionary taxes the direction of the effects of fiscal policies on interest rates and real exchange rates depend upon the timing and composition of government spending and on whether the budget deficit is financed through Income or value added taxes.

JEL Classification: 4312, 3210

Suggested Citation

Frenkel, Jacob A. and Razin, Assaf, Spending, Taxes and Real Exchange Rates (September 22, 1987). IMF Working Paper, Vol. , pp. 1-32, 1987. Available at SSRN: https://ssrn.com/abstract=884890

Jacob A. Frenkel (Contact Author)

Merrill Lynch & Co. - Sovereign Advisory Group and Global Financial Institutions Group

New York, NY
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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