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Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?

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  • Angelopoulos, Konstantinos
  • Malley, James
  • Philippopoulos, Apostolis

Abstract

This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main fi ndings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce ine¢ ciently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of "capitalist bias", are not aligned implying a conflict of interests.

Suggested Citation

  • Angelopoulos, Konstantinos & Malley, James & Philippopoulos, Apostolis, 2011. "Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?," SIRE Discussion Papers 2011-41, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:287
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    References listed on IDEAS

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    1. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-174, Fall.
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    6. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, pages 423-453.
    7. Salvador Ortigueira, 2006. "Markov-Perfect Optimal Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 153-178, January.
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    Citations

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    Cited by:

    1. Papaspyrou Theodoros, 2012. "EMU sustainability and the prospects of peripheral economies," Economic Bulletin, Bank of Greece, issue 36, pages 7-29, April.
    2. Konstantinos Angelopoulos & Bernardo X. Fernandez & James Malley, 2010. "The distributional consequences of supply-side reforms in general equilibrium," Working Papers 2010_26, Business School - Economics, University of Glasgow, revised Jun 2012.
    3. Konstantinos Angelopoulos & James R. Malley & Wei Jiang, 2011. "The distributional consequences of tax reforms under market distortions," Working Papers 2011_21, Business School - Economics, University of Glasgow.
    4. Costas N. Kanellopoulos, 2012. "Employment and worker flows during the financial crisis," Economic Bulletin, Bank of Greece, issue 36, pages 31-41, April.
    5. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James R., 2013. "Tax reforms under market distortions in product and labour markets," European Economic Review, Elsevier, vol. 61(C), pages 28-42.
    6. George Economides & Apostolis Philippopoulos, 2012. "Are User Fees Really Regressive?," CESifo Working Paper Series 3875, CESifo Group Munich.
    7. Faidon Kalfaoglou, 2012. "Bank capital adequacy framework," Economic Bulletin, Bank of Greece, issue 36, pages 43-81, April.
    8. Wei Jiang, 2014. "Optimal taxation and labour wedge in models with equilibrium unemployment," Studies in Economics 1407, School of Economics, University of Kent.

    More about this item

    Keywords

    Optimal fi scal policy; Markov-perfect equilibrium; heterogeneous agents;

    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

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