Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy
AbstractThis paper explores the qualitative and quantitative implications of optimal tax- ation in a developing economy when economic growth is endogenously determined. We di�erentiate this class of economies from a developed economy in two aspects: 1. the informal sector is quantitatively signi…cant and, 2. tax-collecting technologies are more rudimentary. We characterize competitive equilibrium allocations and Ramsey allocations in the context of a small open economy in which the interest rate is endoge- nously determined, some workers can be hired in the informal market and imperfect tax-collecting technology can be heterogeneous across types of taxes. We calibrate the parameters of our model to the Chilean economy. Overall, our results suggest that capital should still be taxed but considerably less than actual taxes (that is, 10.78% versus 18.5%). Labor should be subsidized (to stimulate accumulation of human capital) while consumption taxes should be increased by 50% approximately (from 19% to 28%). As expected, the better collecting technologies, the higher the corresponding taxes. In this context, the resulting growth rate increases only slightly along the balanced growth path.
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Bibliographic InfoPaper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 2013-06.
Length: 45 pages
Date of creation: Jun 2013
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Web page: http://www.utdt.edu/ver_contenido.php?id_contenido=439&id_item_menu=568
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Optimal fiscal policy; economic growth; inefficient tax collecting technology;
Other versions of this item:
- Emilio Espino & Martín González Rozada, 2013. "Normative Fiscal Policy and Growth: Some Quantitative Implications for the Chilean Economy," IDB Publications 82531, Inter-American Development Bank.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-DGE-2013-06-16 (Dynamic General Equilibrium)
- NEP-FDG-2013-06-16 (Financial Development & Growth)
- NEP-IUE-2013-06-16 (Informal & Underground Economics)
- NEP-MAC-2013-06-16 (Macroeconomics)
- NEP-PBE-2013-06-16 (Public Economics)
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