TY  - UNPD
A1  - Mendoza, Enrique G.
A1  - Tesar, Linda L.
A1  - Zhang, Jing
T1  - Saving Europe? : the unpleasant arithmetic of fiscal austerity in integrated economies
T2  - SAFE working paper series ; No. 80
N2  - Europe's debt crisis casts doubt on the effectiveness of fiscal austerity in highly-integrated economies. Closed-economy models overestimate its effectiveness, because they underestimate tax-base elasticities and ignore cross-country tax externalities. In contrast, we study tax responses to debt shocks in a two-country model with endogenous utilization that captures those externalities and matches the capital-tax-base elasticity. Quantitative results show that unilateral capital tax hikes cannot restore fiscal solvency in Europe, and have large negative (positive) effects at "home" ("abroad"). Restoring solvency via either Nash competition or Cooperation reduces (increases) capital (labor) taxes significantly, and leaves countries with larger debt shocks preferring autarky.
T3  - SAFE working paper - 80 
KW  - European debt crisis
KW  - tax competition
KW  - capacity utilization
KW  - fiscal austerity
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/36139
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-361397
UR  - http://safe-frankfurt.de/fileadmin/user_upload/editor_common/Research/Working_Paper/SAFE_WP_80-2.pdf
IS  - December 12, 2014
PB  - SAFE
CY  - Frankfurt am Main
ER  -