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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. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(6), pages 911-935, June.
  2. Narayana Kocherlakota, 2004. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography, UCLA Department of Economics 122247000000000729, UCLA Department of Economics.
  3. Gorostiaga Arantza, 2005. "Optimal Fiscal Policy with Rationing in the Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 5(1), pages 1-22, July.
  4. Mikhail Golosov & Narayana R. Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Working Papers, Federal Reserve Bank of Minneapolis 615, Federal Reserve Bank of Minneapolis.
  5. Arantza Gorostiaga, 2002. "Should Fiscal Policy Be Di.erent in a Non-Competitive Framework?," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2002/11, Centro de Estudios Andaluces.
  6. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 607-22, May.
  7. 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, University of Chicago Press, vol. 102(4), pages 617-52, August.
  8. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(2), pages 338-369, August.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(2), pages 257-279, April.
  11. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745 Elsevier.
  12. 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, University of Chicago Press, vol. 101(3), pages 485-517, June.
  13. Steven P. Cassou & Kevin J. Lansing, 1999. "Fiscal Policy and Productivity Growth in the OECD," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 32(5), pages 1215-1226, November.
  14. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, Elsevier, vol. 71(1), pages 1-26, January.
  15. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Gorostiaga Alonso, Miren Arantzazu, 1999. "Should Fiscal Policy be different in a Non-Competitive Framework?," DFAEII Working Papers, University of the Basque Country - Department of Foundations of Economic Analysis II 2002-28, University of the Basque Country - Department of Foundations of Economic Analysis II.
  17. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, Elsevier, vol. 60(1), pages 21-44, April.
  18. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, Elsevier, vol. 73(1), pages 93-117, March.
  19. Steven P. Cassou & Kevin J. Lansing, 2006. "Tax Reform with Useful Public Expenditures," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 631-676, October.
  20. 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, University of the Basque Country - Department of Foundations of Economic Analysis II 2006-03, University of the Basque Country - Department of Foundations of Economic Analysis II.
  21. Fisher, Walter H & Turnovsky, Stephen J, 1998. "Public Investment, Congestion, and Private Capital Accumulation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(447), pages 399-413, March.
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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, University of the Basque Country - Department of Foundations of Economic Analysis II 2006-03, University of the Basque Country - Department of Foundations of Economic Analysis II.

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