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Taxes and International Risk Sharing
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Taxes and International Risk Sharing

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Abstract

We examine the extent to which differences in international tax rates may account for the small correlations of per capita consumption fluctuations across countries. Theory implies a close relationship between relative consumption growth, and consumption and capital income tax rate differentials. We find strong empirical evidence for this relationship. Idiosyncratic output fluctuations account for the majority of cross country consumption growth variability, but trends in tax differentials are informative about the dynamic evolution of international risk sharing. In particular, adjusting for capital taxes reveals an intuitive positive relationship between financial connectedness and risk sharing that is absent in baseline measures.

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  • Brendan Epstein & Rahul Mukherjee & Shanthi Ramnath, 2014. "Taxes and International Risk Sharing," International Finance Discussion Papers 1110, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1110
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    Cited by:

    1. Epstein, Brendan & Mukherjee, Rahul & Finkelstein Shapiro, Alan & Ramnath, Shanthi, 2020. "Trends in aggregate employment, hours worked per worker, and the long-run labor wedge," MPRA Paper 99289, University Library of Munich, Germany.
    2. Cimadomo, Jacopo & Ciminelli, Gabriele & Furtuna, Oana & Giuliodori, Massimo, 2020. "Private and public risk sharing in the euro area," European Economic Review, Elsevier, vol. 121(C).
    3. Epstein, Brendan & Mukherjee, Rahul & Ramnath, Shanthi, 2016. "Taxes and international risk sharing," Journal of International Economics, Elsevier, vol. 102(C), pages 310-326.

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    More about this item

    Keywords

    International risk sharing; business cycle accounting; taxes;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other

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