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Optimal Fiscal Policy with Endogenous Time Preference

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  • EVANGELOS V. DIOIKITOPOULOS
  • SARANTIS KALYVITIS

Abstract

This paper studies the role of Ramsey taxation under the assumption that the individual rate of time preference is determined by the publicly provided social level of education. We show how intertemporal complementarities of aggregate human capital can generate multiple equilibria and we examine the role of endogenous fiscal policies in equilibrium selection. Our analysis implies a lower optimal government size due to the effect of human capital on time preference.

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  • Evangelos V. Dioikitopoulos & Sarantis Kalyvitis, 2015. "Optimal Fiscal Policy with Endogenous Time Preference," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 848-873, December.
    • Handle: RePEc:bla:jpbect:v:17:y:2015:i:6:p:848-873
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