Taxes and international risk sharing

Epstein, Brendan; Mukherjee, Rahul; Ramnath, Shanthi

Abstract

We extend a standard model of international risk sharing to include an empirically plausible distortion: Taxes. The tax-inclusive theory implies, even under full risk sharing, a predictable relationship between consumption growth and the consumption and capital income tax rates, both within and across countries. We find strong empirical evidence in favor of this relationship. While idiosyncratic output fluctuations account for substantially more of cross-country consumption growth variability than do taxes, trends in tax differentials are found to be informative about the dynamic evolution of international risk sharing. In particular, adjusting for capital taxes reveals a marked improvement in risk sharing over the last three decades that is absent in baseline measures. This improvement has been driven by the convergence of average tax rates on capital income across OECD countries toward the United States average capital tax rate.

Citation

Epstein, B., Mukherjee, R., & Ramnath, S. (2016). Taxes and international risk sharing. Journal of International Economics, 102, 310-326. https://doi.org/10.1016/j.jinteco.2016.08.002

• Journal Article Type: Article
• Acceptance Date: Aug 8, 2016
• Online Publication Date: Aug 13, 2016
• Publication Date: 2016-09
• Deposit Date: Sep 16, 2020
• Publicly Available Date: Sep 16, 2020
• Journal: Journal of International Economics
• Print ISSN: 0022-1996
• Electronic ISSN: 1873-0353
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 102
• Pages: 310-326
• DOI: https://doi.org/10.1016/j.jinteco.2016.08.002
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/4906260
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0022199616300897
• Additional Information: This article is maintained by: Elsevier; Article Title: Taxes and international risk sharing; Journal Title: Journal of International Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jinteco.2016.08.002; Content Type: article; Copyright: © 2016 Elsevier B.V. All rights reserved.