2017年-PIIE彼得森国际经济研究所_Effects_of_Consumption_Taxes_on_Real_Exchange_Rates_and_Trade_Balances_29页_379kb

17-5 Effects of Consumption Taxes on Real Exchange Rates and Trade Balances Summary

Core Content

This paper investigates the effects of border-adjusted consumption taxes, particularly value added taxes (VATs), on real exchange rates (RER) and trade balances in 34 advanced economies from 1970 to 2015. The study aims to determine whether these taxes cause real exchange rate adjustments and how they influence trade balances and current account positions.

Main Findings

• Real Exchange Rate Adjustment: The real exchange rate tends to rise by the full amount of any increase in consumption tax rates, with minimal impact on the current account balance.
• Price Adjustment Mechanism: The primary channel of adjustment is through consumer prices, which rise almost one-to-one with tax increases. This leads to a neutral trade balance, as domestic and foreign prices are affected equally.
• Timeframe of Adjustment: Most of the adjustment occurs within three years of tax implementation.
• Impact on Trade Balance: There is little evidence of a significant effect on the current account balance, though there may be differential impacts on its components.
• Case Studies: Empirical analysis using case studies suggests that the RER adjustment is largely driven by price changes, not exchange rates.

Key Differences Between VATs and CFTs

• VATs are uniform taxes on consumption, which tend to raise consumer prices relative to wages, fully offsetting the tax impact on the RER.
• Border-adjusted cash flow taxes (CFTs), such as the one proposed by the House Republicans, differ in that they allow for varying tax rates based on labor cost share and international exposure. This could lead to different adjustment mechanisms, potentially through the nominal exchange rate.
• The CFT may result in a more immediate effect on trade balances due to its potential to create price imbalances across industries and firms.

Theoretical Implications

• RER and Trade Balance: Theoretical models suggest that border-adjusted consumption taxes do not affect trade balances because the real exchange rate adjusts to offset the tax. This is supported by empirical evidence showing no significant effect on the current account balance.
• Fiscal and Monetary Effects: If tax revenues are returned to consumers, there is no impact on private saving or investment. The trade balance remains unchanged due to the offsetting RER movement.
• VAT Revenue Ratio: The VAT revenue ratio measures the extent to which a VAT covers all goods and services. It is typically below 1 in OECD countries, indicating that some sectors are excluded from the tax base.

Methodology and Data

• The study uses two approaches: one based on analyzing the impact of VAT introduction on prices, RER, and trade balances, and another using econometric analysis to examine long-term relationships.
• Data Sources: Data from 34 OECD countries, including current account balances, net international investment positions, and tax revenue data from the External Wealth of Nations dataset and the IMF's World Economic Outlook.
• Control Variables: General government revenues, fiscal balance, PPP-adjusted per capita income, and net international investment position are used to control for other factors influencing RER and trade balances.
• Regression Frameworks: Both cointegration and conventional frameworks are used. The cointegration approach suggests that the long-run effect of consumption tax rates on RER is close to one, supporting the idea of full exchange rate offset.

Regression Results

• Cointegration Framework:
  • Long-run coefficient on consumption tax rate (GSREV/CONS) against the US is 1.7, against Germany is 0.7, and the overall average is 1.2.
  • The speed of adjustment is about 20% per year.
  • The one-tailed tests support the hypothesis of a one-for-one real exchange rate adjustment, with no rejection of the full offset hypothesis.
• Conventional Framework:
  • The long-run effect of the consumption tax rate on the RER is 1.3.
  • The short-run effect is 0.40, meaning the RER moves by 40% of the tax rate change in the year following the change.
  • The hypothesis of full exchange rate offset is not rejected in any of the regressions.

Conclusion

The study concludes that real exchange rates adjust fully to consumption tax increases, primarily through price changes. While there is little evidence of a significant effect on the current account balance, the trade balance may be affected more directly. The proposed border-adjusted cash flow tax, which differs from traditional VATs, may have different adjustment dynamics, potentially involving the nominal exchange rate, and could lead to larger and more temporary trade effects. The results support the theoretical view that RER adjustments fully offset consumption tax changes, and thus, these taxes are unlikely to have a significant long-term impact on trade balances or the current account.

Key Terms and Concepts

• VAT (Value Added Tax): A consumption tax applied to goods and services at each stage of production.
• Border Adjustment: A tax that applies to imports and excludes exports, affecting domestic and foreign prices differently.
• Real Exchange Rate (RER): The exchange rate adjusted for price levels between countries.
• Current Account Balance (CAB): A measure of a country's trade and investment flows.
• Goods and Services Trade Balance (GSB): The difference between exports and imports of goods and services.
• Consumption Tax Rate (GSREV/CONS): The ratio of goods and services tax revenue to household consumption.

Limitations and Considerations

• The study excludes some countries due to data unreliability or special economic roles (e.g., Luxembourg).
• The presence of fixed exchange rates may influence the pattern of adjustment.
• The dollar's dominant role in global finance may limit the speed and extent of nominal exchange rate adjustments, potentially forcing price and wage adjustments instead.

Implications for Policy

• The results suggest that border-adjusted consumption taxes, like VATs, do not significantly affect trade balances in the long run due to RER adjustments.
• The House Republicans' proposed CFT may have different implications, potentially leading to more immediate and larger trade effects due to the lack of price adjustment.
• Policymakers should consider the potential for price and wage adjustments when implementing such taxes, especially in the context of global financial systems and exchange rate dynamics.