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Tax Policy with Uncertain Future Costs: Some Simple Models

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  • Ball, Christopher
  • Creedy, John

Abstract

This paper considers the extent to which the standard argument, that the disproportionate excess burden of taxation suggests the use of tax-smoothing in the face of future cost increases, is modified by uncertainty regarding the future. The role of uncertainty and risk aversion are examined using several highly simplified models involving a possible future contingency requiring an increase in tax-financed expenditure.

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File URL: http://researcharchive.vuw.ac.nz/handle/10063/2839
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Bibliographic Info

Paper provided by Victoria University of Wellington, Chair in Public Finance in its series Working Paper Series with number 2839.

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Date of creation: 2013
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Handle: RePEc:vuw:vuwcpf:2839

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Postal: School of Accounting & Commercial Law, Victoria University of Wellington, PO Box 600, Wellington, New Zealand
Phone: +64 (4) 463 5775
Fax: +64 (4) 463 5076
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Web page: http://www.victoria.ac.nz/sacl/about/chair-in-public-finance
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Keywords: Tax smoothing; Uncertainty; Risk; Excess burden;

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  1. David Backus & Bryan Routledge & Stanley Zin, 2004. "Exotic Preferences for Macroeconomists," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 04-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Nick Davis & Richard Fabling, 2002. "Population Ageing and the Efficiency of Fiscal Policy in New Zealand," Treasury Working Paper Series, New Zealand Treasury 02/11, New Zealand Treasury.
  3. Jukka Lassila & Tarmo Valkonen, 2004. "Pre-funding Expenditure on Health and Long-term Care under Demographic Uncertainty," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, Palgrave Macmillan, vol. 29(4), pages 620-639, October.
  4. John Creedy, 2004. "The Excess Burden of Taxation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(4), pages 454-464, December.
  5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 940-71, October.
  6. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, Econometric Society, vol. 57(4), pages 937-69, July.
  7. Alex Armstrong & Nick Draper & André Nibbelink & Ed Westerhout, 2007. "Fiscal prefunding in response to demographic uncertainty," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 85, CPB Netherlands Bureau for Economic Policy Analysis.
  8. Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 46(5), pages 1045-60, September.
  9. John Creedy & Grant M. Scobie, 2005. "Population Ageing and Social Expenditure in New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(1), pages 19-39, 03.
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