Identifying optimal contingent fiscal policies in a business cycle model
AbstractOptimal fiscal policy is indeterminate in a dynamic and stochastic environment. The complete characterization of the fiscal policy requires the use of identification constraints. In the literature either capital taxes or debt have been restricted to be not contingent on the state of nature. We propose a different type of identification constraints to have both policy variables state-contingent. Three alternative identification conditions are considered: (i) restrictions on the dynamic and stochastic behavior of the debt path; (ii) an exogenous debt path, and (iii) an exogenous belief function. The main result indicates that the optimal capital tax is zero and constant over the business cycle for any of the identification conditions used, suggesting that is optimal for the government to use debt return as a shock absorber, keeping capital taxes constant. The result is quite different from the previous literature, which obtains very volatile capital taxes. Copyright Springer-Verlag Berlin/Heidelberg 2005
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Spanish Economic Review.
Volume (Year): 7 (2005)
Issue (Month): 4 (December)
Contact details of provider:
Postal: Universidad del País Vasco; DFAE II; Avenida Lehendakari Aguirre, 83; 48015 Bilbao; Spain
Phone: +34 94 6013783
Fax: + 34 94 6013774
Web page: http://link.springer.de/link/service/journals/10108/index.htm
More information through EDIRC
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.