Intergenerational Allocation of Government Expenditures: Externalities and Optimal Taxation

Kazi Iqbal () and Stephen J Turnovsky ()

No UWEC-2007-21-FC, Working Papers from University of Washington, Department of Economics

Abstract: This paper studies optimal taxation in the context of provision of public goods when benefits are age-dependent. We develop a two period overlapping generations model with endogenous labor supply in both periods. We examine how the optimal Ramsey capital and labor income taxes change when the government fails to choose the optimal public provision for each cohort. The deviations of public expenditure from the optimal level create distortions at the intra and inter temporal margins and taxes are required to correct these distortions. We show that regardless of preferences, the government may choose to tax capital in the long run if spending on each cohort is not optimal. We also show that when sufficient tax instruments are available the Ramsey equilibrium can attain the first-best optimum.

New Economics Papers: this item is included in nep-dge and nep-pbe
Date: 2007-10, Revised 2007-10

Forthcoming in Journal of Public Economic Theory

Downloads: (external link)
http://www.econ.washington.edu/user/sturn/Iqbal-Turnovsky_JPET06089-FINAL.pdf (application/pdf)

Related works:
Journal Article: Intergenerational Allocation of Government Expenditures: Externalities and Optimal Taxation (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:udb:wpaper:uwec-2007-21-fc

Access Statistics for this paper

More papers in Working Papers from University of Washington, Department of Economics
Contact information at EDIRC.
Series data maintained by Michael Goldblatt ().