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The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model

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  • Ben J. Heijdra
  • Johanna Elisabeth Ligthart

Abstract

The paper studies the dynamic allocation effects of tax policy in the context of an overlapping generations model of the Blanchard-Yaari type. The model is extended to allow for endogenous labor supply and three tax instruments: a capital income tax, labor income tax, and consumption tax. Analytical expressions and simple diagrams are used to discuss the impact, transition, and long-run effects of tax policy changes. It is shown that a part of the long-run incidence of capital and consumption taxes falls on capital when households’ horizons are finite, whereas labor would fully bear the burden of these taxes in an infinite horizon model.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/182.

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Length: 29
Date of creation: 01 Dec 1998
Date of revision:
Handle: RePEc:imf:imfwpa:98/182

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Cited by:
  1. Simone Valente, 2005. "Tax policy and human capital formation with public investment in education," CER-ETH Economics working paper series, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich 05/41, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Heijdra, B.J. & Ligthart, J.E., 2004. "The Macroeconomic Dynamics of Demographic Shocks," Discussion Paper, Tilburg University, Center for Economic Research 2004-90, Tilburg University, Center for Economic Research.
  3. Xavier Pautrel, 2008. "Environmental Policy, Education and Growth: A Reappraisal when Lifetime Is Finite," Working Papers, Fondazione Eni Enrico Mattei 2008.57, Fondazione Eni Enrico Mattei.
  4. Heijdra, B.J. & Kooiman, J.P. & Ligthart, J.E., 2004. "Environmental Quality, the Macroeconomy and Intergenerational Distribution," Discussion Paper, Tilburg University, Center for Economic Research 2004-73, Tilburg University, Center for Economic Research.
  5. Giovanni Ganelli, 2002. "Fiscal Policy Rules in an Overlapping Generations Model with Endogenous Labour Supply," Trinity Economics Papers, Trinity College Dublin, Department of Economics 200215, Trinity College Dublin, Department of Economics.
  6. Ascari, Guido & Rankin, Neil, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series, European Central Bank 0346, European Central Bank.
  7. Mathieu-Bolh, Nathalie, 2010. "Welfare improving distributionally neutral tax reforms," Economic Modelling, Elsevier, Elsevier, vol. 27(5), pages 1253-1268, September.
  8. Pautrel, Xavier, 2009. "Pollution and life expectancy: How environmental policy can promote growth," Ecological Economics, Elsevier, Elsevier, vol. 68(4), pages 1040-1051, February.

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