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Optimal Tax Policy, Government Myopia and Insolvency


  • Levine, Paul L
  • Pearlman, Joseph


This paper explores the relationship between the myopia, the solvency and the reputation of a government choosing the optimal financing policy given a particular path of government spending. A central result is the demonstration of a logical link between government myopia and insolvency in the sense that there is a class of models for which a solution to the optimal taxation problem does not exist. Results are shown analytically for a very simple non-monetary economy, for a seigniorage model examined by Obstfeld and, using simulations, for a more developed non-Ricardian model with capital.

Suggested Citation

  • Levine, Paul L & Pearlman, Joseph, 1993. "Optimal Tax Policy, Government Myopia and Insolvency," CEPR Discussion Papers 768, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:768

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    Cited by:

    1. Thomas Krichel, 1993. "Seigniorage, Taxation and Myopia in EMU," School of Economics Discussion Papers 9401, School of Economics, University of Surrey.

    More about this item


    Government Myopia; Optimal Taxation; Solvency;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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


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