Advanced Search
MyIDEAS: Login to save this paper or follow this series

Pre-announced optimal tax reform

Contents:

Author Info

  • Paul Klein

    (Institute for international economic studies, Stockholm University)

  • David Domeij

    (Department of Economics, Northwestern University)

Abstract

Optimal tax policies in dynamic models have unappealing features. In particular, optimal tax reform typically involves a large initial accumulation of government assets which is responsible for a large part of the welfare gains from optimal tax reform. In this paper, we investigate the robustness of these findings by studying optimal tax policy in a standard growth model when a reform has to be announced in advance of its implementation. We find that this requirement leads to an optimal solution which is considerably more reasonable than optimal tax reforms studied previously. Using numerical calculations, we find that the optimal pre-announced tax reform involves only a small initial accumulation of government assets. We also find that the welfare gains from optimal tax reform are reduced by no more than a third when the government is required to pre-announce reform about 14 years in advance, and that this reduction is mainly due to the delay itself rather than the effect of pre-announcement on the character of the optimal tax reform. This leaves us with a welfare gain corresponding to an increase in consumption of about 1 percent from a tax reform with reasonable properties.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/mac/papers/9804/9804002.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 9804002.

as in new window
Length: 20 pages
Date of creation: 29 Apr 1998
Date of revision:
Handle: RePEc:wpa:wuwpma:9804002

Note: Type of Document - zipped pdf and ps files; prepared on IBM PC; to print on PostScript; pages: 20 + 9; figures: 9 of them is separate ps files
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: optimal taxation; growth model; implementation lags;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mathias Trabandt, 2006. "Optimal Pre-Announced Tax Reforms Under Valuable And Productive Government Spending," 2006 Meeting Papers 668, Society for Economic Dynamics.
  2. Baltasar Manzano & Jesús Ruiz, 2002. "Política Fiscal Óptima: el estado de la Cuestión," Documentos de Trabajo del ICAE 0212, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  3. Ambler, Steve, 1999. "Les modèles à agent représentatif et la politique de taxation optimale," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(4), pages 539-557, décembre.
  4. Strulik, Holger & Trimborn, Timo, 2010. "Anticipated tax reforms and temporary tax cuts: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2141-2158, October.
  5. Trabandt, Mathias & Uhlig, Harald, 2010. "How far are we from the slippery slope? The Laffer curve revisited," Working Paper Series 1174, European Central Bank.
  6. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
  7. Gasteiger, Emanuel & Zhang, Shoujian, 2014. "Anticipation, learning and welfare: the case of distortionary taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 113-126.
  8. Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9804002. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.