The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Taxes and International Risk Sharing
Brendan Epstein, Rahul Mukherjee, and Shanthi P. Ramnath
2014-1110  (June 2014)

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.

Full paper (714 KB PDF)

International risk sharing, business cycle accounting, taxes

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2014 IFDPs
Accessibility | Contact Us
Last update: June 24, 2014