Distortionary Taxes and Public Investment When Government Promises Are Not Enforceable

Marina Azzimonti, Daniel Sarte () and Jorge Soares ()
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Daniel Sarte: Federal Reserve Bank of Richmond
Jorge Soares: Department of Economics,University of Delaware
Authors registered in the RePEc Author Service: Pierre Daniel Sarte

No 06-07, Working Papers from University of Delaware, Department of Economics

Abstract: We characterize Markov-perfect equilibria in a setting where the absence of government commitment affects the financing of productive public capital. We show that at any date, a government in office only considers intertemporal distortions over two consecutive periods in choosing taxes. We then use our framework to quantify the value of commitment, which we define as that obtained from binding governments to a course of actions that produce the second-best allocations.

Keywords: Public Investment; Commitment; Time consistency; Discretion; Ramsey; Markov-Perfect (search for similar items in EconPapers)
JEL-codes: E61 E62 H11 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2006
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Distortionary taxes and public investment when government promises are not enforceable (2009)
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