Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?
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 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 inefficiently high cap- ital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers inter- ests, regarding the optimal amount of "capitalist bias", are not aligned implying a trade-off between efficiency and equity.
|Date of creation:||Apr 2011|
|Date of revision:|
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