On the Economics of Fiscal Populism in an Open Economy
We study a representative agent, open economy in which government-provided services that enter the domestic production function must be financed with distortionary taxes, and focus on the optimal size of government and the associated optimal tax rate. If the government can precommit its actions, it maximizes individual welfare by announcing and implementing a constant tax rate, which we label the “orthodox” tax rate. This tax rate is time inconsistent, and under discretion the government implements a tax that maximizes each period’s output. We label this the “populist” tax rate. It may be higher or lower than the “orthodox” rate, depending on whether the elasticity of substitution in production between private and public inputs is below or above one. We also characterize the second-best tax rate that can be sustained through trigger strategies. This best sustainable tax rate is constant and lies between the “orthodox” and “populist” extremes.
(This abstract was borrowed from another version of this item.)
|Date of creation:||1994|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.htmlEmail:
More information through EDIRC
|Order Information:|| Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- V.V. Chari & Patrick J. Kehoe, 1989.
122, Federal Reserve Bank of Minneapolis.
- Rudiger Dornbusch & Sebastian Edwards, 1991.
"The Macroeconomics of Populism in Latin America,"
National Bureau of Economic Research, Inc, number dorn91-1, October.
- Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
- Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
- Benhabib, Jess & Rustichini, Aldo, 1991. "Social Conflict, Growth and Inequality," Working Papers 91-46, C.V. Starr Center for Applied Economics, New York University.
- Barro, R.J., 1988.
"Government Spending In A Simple Model Of Endogenous Growth,"
RCER Working Papers
130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Velasco, A., 1993. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," Working Papers 93-04, C.V. Starr Center for Applied Economics, New York University.
- Obstfeld, Maurice, 1991.
"Dynamic Seigniorage Theory: An Exploration,"
CEPR Discussion Papers
519, C.E.P.R. Discussion Papers.
- Maurice Obstfeld, 1989. "Dynamic Seigniorage Theory: An Exploration," NBER Working Papers 2869, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1997. "Dynamic Seigniorage Theory: An Exploration," Department of Economics, Working Paper Series qt712610vq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Maurice Obstfeld and ., 1997. "Dynamic Seigniorage Theory: An Exploration," Center for International and Development Economics Research (CIDER) Working Papers C97-085, University of California at Berkeley.
- V.V. Chari & Harold Cole, 1993. "A contribution to the theory of pork barrel spending," Staff Report 156, Federal Reserve Bank of Minneapolis.
- Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:cvs:starer:94-22. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne Stubing)
If references are entirely missing, you can add them using this form.