Tax smoothing in a business cycle model with capital-skill complementarity

Konstantinos Angelopoulos, Stylianos Asimakopoulos and Jim Malley

No 2014-017, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, signi cantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government fi nds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under fl exible skill supply.

Keywords: skill premium; tax smoothing; optimal scal policy (search for similar items in EconPapers)
Date: 2014-03-26
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Tax smoothing in a business cycle model with capital-skill complementarity (2015)
Working Paper: Tax Smoothing in a Business Cycle Model with Capital-Skill Complementarity (2014)
Working Paper: Tax smoothing in a business cycle model with capital-skill complementarity (2014)
Working Paper: Tax smoothing in a business cycle model with capital-skill complementarity (2014)
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