Capital Taxation and Government Debt Policy with Public Discounting

Malte Rieth ()

No 1697, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty. The government has access to linear taxes on capital and labor, and to non-state-contingent bonds. Government impatience generates positive and empirically realistic longrun levels of both capital taxes and public debt. Prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries, alongside other statistics. The paper then presents econometric evidence that countries with higher political instability, used as an approximation of unobservable public discount rates, have both higher capital taxes and debt.

Keywords: Fiscal policy; prior predictive analysis; political instability; macro panel; Ramsey optimal policy (search for similar items in EconPapers)
JEL-codes: C23 E62 H21 H63 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2017
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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Journal Article: Capital taxation and government debt policy with public discounting (2017)
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