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Precautionary Saving and the Timing of Taxes

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  • Kimball, Miles S
  • Mankiw, N Gregory

Abstract

This paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely-lived households having uncertain and heterogeneous incomes. The special structure of the model allows exact aggregation across households despite incomplete markets. The effects of government debt are shown to be substantial, roughly comparable to those resulting from finite horizons, and crucially dependent on the length of time until the debt is repaid. Also, anticipated changes in taxes are shown to cause anticipated changes in consumption. Finally, an index of fiscal stance is derived. Copyright 1989 by University of Chicago Press.

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  • Kimball, Miles S & Mankiw, N Gregory, 1989. "Precautionary Saving and the Timing of Taxes," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 863-879, August.
    • Handle: RePEc:ucp:jpolec:v:97:y:1989:i:4:p:863-79
    DOI: 10.1086/261631
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    References listed on IDEAS

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