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Public Capital and Optimal Taxes Without Commitment

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Author Info
Benhabib, J.
Rustichini, A.
Velasco, A.

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Abstract

We consider a representative agent, infinite-horizon economy where production requires private and public capital. The supply of public capital is financed through distortionary taxation. The optimal (second best) tax policy of a benevolent government is time inconsistent. We therefore introduce explicitely the constraint that at no point in time the revision of the original tax plan is desirable. We completely characterize the (third best) tax plan that satisfies this constraint, and estimate the difference in tax rate between the second and third best policy for a wide range of parameters.

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Publisher Info
Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 96-19.

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Length: 26 pages
Date of creation: 1996
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Handle: RePEc:cvs:starer:96-19

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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Related research
Keywords: CAPITAL; TAXES; TAXATION;

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Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

References listed on IDEAS
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  1. Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October. [Downloadable!] (restricted)
  2. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May. [Downloadable!] (restricted)
  4. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June. [Downloadable!] (restricted)
  5. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August. [Downloadable!] (restricted)
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  6. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1994. "Optimal Fiscal Policy in a Business Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 617-52, August. [Downloadable!] (restricted)
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  7. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93. [Downloadable!] (restricted)
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  8. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  9. Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-68, June. [Downloadable!] (restricted)
  10. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  11. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Salvador Ortigueira, 1999. "Equilibrium Indeterminacy in an Endogenous Growth Model: Debt as a Coordination Device," Working Papers 9901, Centro de Investigacion Economica, ITAM. [Downloadable!]
  2. Velasco, A., 1996. "When Are Fixed Exchange Rates Really Fixed?," Working Papers 96-42, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  3. George Economides & Apostolis Philippopoulos, 2003. "Are Nash Tax Rates too Low or Too High? The Role of Endogenous Growth in Models with Public Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 37-53, January. [Downloadable!] (restricted)
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