Exchange Rate Implications of Border Tax Neutrality
Willem H. Buiter
Economic Advisor, Speaker; Chief Economic Advisor Colligo Labs; MD at SEDA Experts LLC, Advisor to Detter & Co, former Professor of Economics; former Chief Economist at Citi and EBRD, former Member MPC, Bank of England.
L.S.,
VoxEU has just published a note of mine that (with minor differences) was earlier published by Citi in the Citi Research Global Economics Views series.
Abstract
A border tax adjustment from origin-based taxation to destination-based taxation is under consideration for corporate profit tax in the US. This column investigates the implications of such an adjustment for the nominal exchange rate, assuming the real equilibrium of the economy is unchanged. While conventional wisdom is that the currency of the country implementing the adjustment will appreciate by a percentage equal to the VAT or corporate profit tax rate, a depreciation of the same magnitude is just as likely.
The VoxEU version can be found here:
https://voxeu.org/article/exchange-rate-implications-border-tax-adjustment-neutrality
Regards,
Willem
Strategic Analytics, Risk Management, Quantitative Finance
8 年Hi Willem, you've concluded based on a review of theory that we cannot predict the direction or magnitude of a BTA on exchange rates but I am curious if there is any empirical evidence on this? (I will also look into the citations you've provided myself to see if I can find anything) Perhaps empirics may help us in reaching a more definitive conclusion.