Fiscal policy rules in an overlapping generations model with endogenous labour supply
AbstractA fiscal policy rule in which taxation is a function of existing government debt (a "wealth-tax") is usually believed to be effective in providing stability. Using a dicrete-time version of Blanchard's overlapping generations model, extended to include money and an endogenous labour supply we show that, contrary to the intuition, a wealth tax might not be enough to ensure the existence of a unique, well defined, saddle-path equilibrium. We suggest that a government willing to run a positive and sustainable level of debt could use an alternative financing rule, imposing an additional tax component, that is a function of the difference between the real interest rate and the tax rate on wealth.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 31 (2007)
Issue (Month): 3 (March)
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Other versions of this item:
- Giovanni Ganelli, 2002. "Fiscal Policy Rules in an Overlapping Generations Model with Endogenous Labour Supply," Trinity Economics Papers 200215, Trinity College Dublin, Department of Economics.
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