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Optimal fiscal policy in a multisector model with minimum expenditure requirements

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  • Gorostiaga Alonso, Miren Arantzazu
  • Cassou, Steven P.

Abstract

This paper investigates optimal fiscal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint and requirements that some minimum amount of spending be undertaken in each sector. It is shown that optimal policy does not equally spend in each sector but instead results in one of the minimum expenditure constraints binding.

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Bibliographic Info

Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2007-01.

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Date of creation: Mar 2007
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Handle: RePEc:ehu:dfaeii:200701

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Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: multisector model; Ramsey planner; minimum expenditure constraint;

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References

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  1. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal Fiscal Policy in a Business Cycle Model," NBER Working Papers 4490, National Bureau of Economic Research, Inc.
  2. Cassou, Steven P. & Hamilton, Stephen F. & Gorostiaga Alonso, Miren Arantzazu & Gutiérrez Huerta, María José, 2006. "Second-best tax policy in a growing economy with externalities," DFAEII Working Papers 2006-03, University of the Basque Country - Department of Foundations of Economic Analysis II.
  3. Mikhail Golosov & Aleh Tsyvinski, 2005. "Designing Optimal Disability Insurance: A Case for Asset Testing," Levine's Bibliography 784828000000000450, UCLA Department of Economics.
  4. Narayana Kocherlakota, 2004. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography 122247000000000729, UCLA Department of Economics.
  5. Steven P. Cassou & Kevin J. Lansing, 1999. "Fiscal policy and productivity growth in the OECD," Working Papers in Applied Economic Theory 99-02, Federal Reserve Bank of San Francisco.
  6. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
  7. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, vol. 73(1), pages 93-117, March.
  8. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
  10. Gorostiaga, A., 1999. "Should Fiscal Policy be Different in a Non-Competitive Framework?," Papers 9901, Centro de Estudios Monetarios Y Financieros-.
  11. Gorostiaga Alonso, Miren Arantzazu, 1999. "Should Fiscal Policy be different in a Non-Competitive Framework?," DFAEII Working Papers 2002-28, University of the Basque Country - Department of Foundations of Economic Analysis II.
  12. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, vol. 108(447), pages 399-413, March.
  13. Gorostiaga Arantza, 2005. "Optimal Fiscal Policy with Rationing in the Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-22, July.
  14. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
  15. 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.
  16. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  17. Andrés Erosa & Martin Gervais, 1998. "Optimal Taxation in Life-Cycle Economies," UWO Department of Economics Working Papers 9812, University of Western Ontario, Department of Economics.
  18. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2002. "Optimal Indirect and Capital Taxation," NajEcon Working Paper Reviews 391749000000000449, www.najecon.org.
  19. Steven P. Cassou & Kevin J. Lansing, 2006. "Tax Reform with Useful Public Expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 631-676, October.
  20. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  21. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
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Cited by:
  1. Cassou, Steven P. & Hamilton, Stephen F. & Gorostiaga Alonso, Miren Arantzazu & Gutiérrez Huerta, María José, 2006. "Second-best tax policy in a growing economy with externalities," DFAEII Working Papers 2006-03, University of the Basque Country - Department of Foundations of Economic Analysis II.

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