A Fiscal Framework for Analysis of Interest Rate Behavior in Open Economies / John H. Makin.

Format:

Book

Author/Creator:

Makin, John H.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1355.

NBER working paper series no. w1355

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper derives a reduced-form expression for an interestrate in an open economy by incorporating after tax covered interest parity conditions into a simple neo-classical macro model. The result clearly demonstrates that the relationship between an interest rate and variables used to explain it is conditional on income tax rates at home and abroad and presence or absence of capital gains tax treatment of foreign exchange gains or losses. Effects of non-indexation of tax treatment of depreciation and inventories may also play a role. Any change in effective tax rates over a sample period employed to estimate interest rate (or exchange rate) equations may cause deterioration in the fit of a fixed coefficient model. Efforts are underway to employ a random coefficients approach to address this problem.

Notes:

Print version record

May 1984.