Indirect taxation and the welfare effects of altruism on the optimal fiscal policy
AbstractThis paper analyzes the welfare effects of altruism on the optimal fiscal policy. The existence of positive bequests links present and future generations in the economy. We show that these altruistic links provide a new role for indirect taxation (consumption and estate taxes) with important welfare implications. We use three different altruistic approaches (warm-glow, dynastic, and family) to illustrate how the presence of bequests in the budget constraint of the donee gives the government the ability to use indirect taxation to mimic lump-sum taxes and to implement the first-best outcome in the long-run. This channel is not present in economies without altruism, such as the infinite-lived consumer economy or the overlapping generations economy, where long-run welfare is suboptimal and indirect taxation is irrelevant.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 26 (2009)
Issue (Month): 6 (November)
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Web page: http://www.elsevier.com/locate/inca/30411
Optimal taxation Altruism Dynamic general equilibrium;
Other versions of this item:
- Carlos Garriga & Fernando Sánchez-Losada, 2009. "Indirect taxation and the welfare effects of altruism on the optimal fiscal policy," Working Papers 2009-047, Federal Reserve Bank of St. Louis.
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