Social Discounting and Incentive Compatible Fiscal Policy
AbstractThis paper considers a Ramsey model of linear capital and labor income taxation in which the government cannot commit ex-ante to a sequence of policies for the future. In this setup, if the government is more impatient than households, the capital income tax will always be positive in steady state. Furthermore, the steady state to which the economy converges is independent of initial conditions. Numerical simulations suggest that as the difference between private and public discounting increases, the level of the steady state capital tax and public debt also become higher.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 413.
Date of creation: 2009
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Reis, Catarina, 2012. "Social discounting and incentive compatible fiscal policy," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2469-2482.
- 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
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
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