Budget Deficits, Corporate Income Taxes, and the Current Account.

This paper studies the effects of budget deficits financed by taxing corporate incomes. As households are finitely lived, transfers and taxes on personal incomes are discounted at a higher rate than the interest on government debt. As corporations are infinitely lived, taxes on corporations are discounted at the same rate as the interest on government debt. Thus, unanticipated deficits financed by taxing corporate incomes are neutral. Anticipated deficits financed by taxing corporations cause a current account surplus, as transfers are then discounted at a higher rate than the taxes. Shifting taxes from households to corporations causes a current account surplus. Copyright 1995 by Ohio State University Press.