02103cas a2200253 a 4500 AALejournalIMF005367 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451870855 1018-5941 BD-DhAAL BD-DhAAL Tervala, Juha. Tax Reforms, 'Free Lunches', and 'Cheap Lunches' in Open Economies / Juha Tervala, Giovanni Ganelli. Washington, D.C. : International Monetary Fund, 2008. 1 online resource (30 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper focuses on the macroeconomic and budgetary impact of tax reforms in a New Keynesian two-country model. Our results show that both income and consumption unilateral tax rate reductions do not constitute a "free lunch", in the sense that they have negative budgetary consequences for the country which implements them. In addition, the degree of self-financing implied by our model is in the 8 1\2 -24 percent range. Since the degree of self-financing estimated in previous literature was larger, we conclude that in our model not only the "lunch" is not "free", but is also not that "cheap". A comparison of alternative (income-tax versus consumption-tax based) fiscal stimulus packages shows that consumption tax cuts imply a larger short-run impact on domestic output but the income tax cuts stimulate the domestic economy more in the long run. We also look at the implications of a revenue-neutral tax reform in which consumption taxes are increased to compensate for lower income tax collection. Mode of access: Internet Ganelli, Giovanni. IMF Working Papers; Working Paper ; No. 2008/227 Full text available on IMF http://elibrary.imf.org/view/journals/001/2008/227/001.2008.issue-227-en.xml IMF e-Library