Tax structure, welfare, and the stability of equilibrium in a model of dynamic optimal fiscal policy

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Tax structure, welfare, and the stability of equilibrium in a model of dynamic optimal fiscal policy

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Jang-Ting Guo
Kevin J. Lansing

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Jang-Ting Guo

Abstract

A demonstration that the assumed structure of taxation can have dramatic effects on economic welfare and on the stability of the steady state in a dynamic general-equilibrium model of optimal fiscal policy. The authors find that household welfare is highest under a structure that includes separate tax rates on labor and capital incomes, double taxation of dividends, and tax-deductible depreciation.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9410.

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Date of creation: 1994
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Handle: RePEc:fip:fedcwp:9410

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Keywords: Taxation ; Fiscal policy;

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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.:

Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June. [Downloadable!] (restricted)
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)
Other versions:
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Cooley, Thomas F. & Hansen, Gary D., 1992. "Tax distortions in a neoclassical monetary economy," Journal of Economic Theory, Elsevier, vol. 58(2), pages 290-316, December. [Downloadable!] (restricted)
Other versions:
- Cooley, T.F. & Hansen, G.D., 1991. "Tax Distortions in a Neoclassical Monetary Economy," RCER Working Papers 265, University of Rochester - Center for Economic Research (RCER).
- Cooley, T.F. & Hansen, G.D., 1991. "The Distortions in a Neoclassical Monetary Economy," Papers 91-01, Rochester, Business - General.
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Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993. "On the Optimal Taxation of Capital Income," NBER Working Papers 4525, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- 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. [Downloadable!] (restricted)
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Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Other versions:
- V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal fiscal policy in a business cycle model," Staff Report 160, Federal Reserve Bank of Minneapolis. [Downloadable!]
- 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)
Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May. [Downloadable!] (restricted)
Kevin J. Lansing, 1994. "Optimal fiscal policy when public capital is productive: a business- cycle perspective," Working Paper 9406, Federal Reserve Bank of Cleveland. [Downloadable!]
Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January. [Downloadable!] (restricted)
Ellen McGrattan & Richard Rogerson & Randall Wright, 1993. "Household production and taxation in the stochastic growth model," Staff Report 166, Federal Reserve Bank of Minneapolis. [Downloadable!]
Jang-Ting Guo & Kevin J. Lansing, 1994. "The welfare effects of tax simplification: a general-equilibrium analysis," Working Paper 9409, Federal Reserve Bank of Cleveland. [Downloadable!]
Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280. [Downloadable!] (restricted)
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. [Downloadable!]
Other versions:
- 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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(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.)

Jang-Ting Guo & Kevin J. Lansing, 1994. "The welfare effects of tax simplification: a general-equilibrium analysis," Working Paper 9409, Federal Reserve Bank of Cleveland. [Downloadable!]

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