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Tax Policy and Consumer Foresight: A General Equilibrium Simulation Study

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  • Ballard, Charles L

Abstract

This paper presents a dynamic, computational, general-equilibrium model in which expectations regarding future prices can be varied systematically. T he model is employed to evaluate how expectations influence the effec t of long-run tax policy changes. Under policies (like a consumption tax) that reduce rates of return over time, individuals with perfect foresight save less than individuals with myopic beliefs. This is bec ause consumers with foresight are better able to anticipate the lower returns. Lower saving means that existing distortions due to capital taxes are not offset as much, so that welfare gains are smaller unde r perfect foresight. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Ballard, Charles L, 1987. "Tax Policy and Consumer Foresight: A General Equilibrium Simulation Study," Economic Inquiry, Western Economic Association International, vol. 25(2), pages 267-284, April.
  • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:2:p:267-84
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    Cited by:

    1. Sylvain Chabe-Ferret & Julien Gourdon & Mohamed Ali Marouani & Tancrède Voituriez, 2007. "Trade-Induced Changes in Economic Inequality: Assessment Issues and Policy Implications for Developing Countries," Working Papers DT/2007/11, DIAL (Développement, Institutions et Mondialisation).
    2. Mark Partridge & Dan Rickman, 2010. "Computable General Equilibrium (CGE) Modelling for Regional Economic Development Analysis," Regional Studies, Taylor & Francis Journals, vol. 44(10), pages 1311-1328.
    3. Féménia, Fabienne & Gohin, Alexandre, 2013. "On the optimal implementation of agricultural policy reforms," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 61-74.
    4. Bye, Brita, 2000. "Environmental Tax Reform and Producer Foresight: An Intertemporal Computable General Equilibrium Analysis," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 719-752, November.

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