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Time-consistent optimal fiscal policy

Time-consistent optimal fiscal policy
Time-consistent optimal fiscal policy
his article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period's capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.
0020-6598
Klein, Paul
feea4bea-ca95-41ce-b72c-92b7d05247b1
Rios-Rull, Jose-Victor
2cb54fbd-91fa-4e43-b51b-17f280e80b39
Klein, Paul
feea4bea-ca95-41ce-b72c-92b7d05247b1
Rios-Rull, Jose-Victor
2cb54fbd-91fa-4e43-b51b-17f280e80b39

Klein, Paul and Rios-Rull, Jose-Victor (2003) Time-consistent optimal fiscal policy. International Economic Review, 44 (4). (doi:10.1111/1468-2354.t01-1-00107).

Record type: Article

Abstract

his article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period's capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.

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Published date: November 2003

Identifiers

Local EPrints ID: 188415
URI: http://eprints.soton.ac.uk/id/eprint/188415
ISSN: 0020-6598
PURE UUID: dbe0c138-cf90-4a1a-a358-3147a647c962

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Date deposited: 24 May 2011 16:14
Last modified: 14 Mar 2024 03:31

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Contributors

Author: Paul Klein
Author: Jose-Victor Rios-Rull

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