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Redistribution and Government Commitment

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  • Youngsoo Jang

    (Yonsei University)

Abstract

I study a dynamic game of successive governments in an incomplete-markets economy, where governments set labor income taxes and lump-sum taxes/transfers depending on their commitment ability. I find that commitment enables the government to coordinate policies across periods, thereby internalizing the effects of current policy decisions on the evolution of factor prices and wealth distributions shaped by past history. Commitment facilitates substantial long-term taxes and transfers, incurring long-run welfare losses but yielding short-run welfare gains through front-loaded reductions in precautionary savings and favorable factor price adjustments for low-income individuals. Without commitment, the government overlooks this intertemporal trade-off, yielding smaller short-run gains.

Suggested Citation

  • Youngsoo Jang, 2025. "Redistribution and Government Commitment," Working papers 2025rwp-269, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2025rwp-269
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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