Alternative Forms of Government Expenditure Financing: A Comparative Welfare Analysis
This paper derives criteria for evaluating the impact of an increase in government expenditure on both the time path of instantaneous utility and overall welfare, under alternative forms of tax financing. These consist of three factors. The first is the direct crowding-out effect, which reflects the utility differential between the government expenditure being undertaken and the private consumption it is displacing. The second describes the intertemporal trade-off between the effect on the short-run rate of capital accumulation and the resulting change in the the long-run capital stock. The final term is due to the distortion arising from the pre-existence of a tax on wage income. Copyright 1992 by The London School of Economics and Political Science.
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Volume (Year): 59 (1992)
Issue (Month): 234 (May)
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