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American Economic Journal: Economic Policy: Vol. 4 No. 2 (May 2012)

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Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks

Article Citation

Feyrer, James, and Jay Shambaugh. 2012. "Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks." American Economic Journal: Economic Policy, 4(2): 95-114.

DOI: 10.1257/pol.4.2.95

Abstract

This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels of development. (JEL E21, E22, E23, E62, F32, F42)

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Authors

Feyrer, James (Dartmouth College)
Shambaugh, Jay (Georgetown U)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
E22: Capital; Investment; Capacity
E23: Macroeconomics: Production
E62: Fiscal Policy
F32: Current Account Adjustment; Short-term Capital Movements
F42: International Policy Coordination and Transmission

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