Optimal Pre-Announced Tax Reforms Under Valuable And Productive Government Spending

Mathias Trabandt

No 668, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper analyzes optimal pre-announced capital and labor income tax reforms under valuable and productive government spending. Our baseline optimal reform reveals that these model ingredients result in a reduction of welfare losses that occur when the reform is announced before its implementation. Further, the mere existence of welfare losses from pre-announcement is due to the ability of the government to initially choose very high capital taxes and negative labor taxes. A government that instead chooses optimal long run taxes from the implementation date onwards generates sizable increases of welfare gains from pre-announcing the reform. We show that 4 years pre-announcement of this reform and the baseline optimal reform deliver similar levels of welfare gains. The underlying tax structure of both reforms, however, appears to be very different

Keywords: Optimal taxation; pre-announcement; valuable and productive government spending; welfare (search for similar items in EconPapers)
JEL-codes: E0 E6 H0 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-acc, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (4)

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Working Paper: Optimal Pre-Announced Tax Reform Revisited (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:668

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