Optimal Fiscal Policy in Overlapping Generations Models
AbstractThis paper analyzes the optimal fiscal policy in overlapping generation economies with production where agents live I periods. The primal approach is used to characterize the optimal taxes in steady state and along the transition path to some steady state. The basic idea is to transform the government problem of choosing the optimal taxes, into a simple programming problem of choosing allocations subject to some constraints. The key findings is that if the set of taxes is complete and the utility is homothetic and separable, then capital taxes are zero along the transition path to the steady state after two periods. This result is an equivalent version of Chamley (1986) with overlapping generations. With additional assumptions in the discount factor and endowment of efficiency units, it can be shown that non-separable utility functions satisfy the zero capital taxes result in steady state, but not during the transition path. This is due to the fact that from the government point of view, under this assumptions, the overlapping generation economy is equivalent to an infinitely lived economy.
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1772.
Date of creation: 01 Aug 2000
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Other versions of this item:
- Carlos Garriga, 2001. "Optimal Fiscal Policy in Overlapping Generations Models," Working Papers in Economics 66, Universitat de Barcelona. Espai de Recerca en Economia.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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