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Social discounting and incentive compatible fiscal policy

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  • Reis, Catarina

Abstract

This paper considers a representative agent 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 the households, the capital income tax will be positive in steady state. Thus, impatience and lack of commitment are able to generate positive capital taxes in the long run, although each of these characteristics individually was not. Furthermore, the steady state to which the economy converges is independent of initial conditions.

Suggested Citation

  • Reis, Catarina, 2012. "Social discounting and incentive compatible fiscal policy," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2469-2482.
  • Handle: RePEc:eee:jetheo:v:147:y:2012:i:6:p:2469-2482
    DOI: 10.1016/j.jet.2012.09.001
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    References listed on IDEAS

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    Cited by:

    1. Amador, Manuel & Aguiar, Mark, 2015. "Fiscal Policy in Debt Constrained Economies," Staff Report 518, Federal Reserve Bank of Minneapolis.
    2. Nina Biljanovska & Alexandros Vardoulakis, 2017. "Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing," Finance and Economics Discussion Series 2017-053, Board of Governors of the Federal Reserve System (U.S.).
    3. Aguiar, Mark & Amador, Manuel, 2016. "Fiscal policy in debt constrained economies," Journal of Economic Theory, Elsevier, vol. 161(C), pages 37-75.
    4. Malte Rieth, 2017. "Capital Taxation and Government Debt Policy with Public Discounting," Discussion Papers of DIW Berlin 1697, DIW Berlin, German Institute for Economic Research.
    5. repec:eee:dyncon:v:85:y:2017:i:c:p:1-20 is not listed on IDEAS

    More about this item

    Keywords

    Fiscal policy; Optimal taxation; Incidence; Debt;

    JEL classification:

    • 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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