Government Reputation and Fiscal Capacity

Emin Ablyatifov and Georgy Lukyanov
Additional contact information
Emin Ablyatifov: Unknown
Georgy Lukyanov: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Working Papers from HAL

Abstract: How does uncertain implementation shape fiscal policy over time? We study an uninformed fiscal authority that chooses a distortionary tax-financed mandate and audit intensity while a privately informed executive decides whether to deliver or divert the proceeds. Reputation is the Bayesian state variable linking current fiscal control to future capacity. In a two-period benchmark, a mandate is also an experiment: delivery sacrifices current rents but preserves future access. We prove that the dynamic activation threshold is no greater than the square of the static reputation cutoff; the bound is exact and independent of discounting in a linear-benefit, quadratic-cost economy. A positive trial mandate may therefore be optimal when every positive tax is statically undesirable. In the infinite-horizon model, posterior reputation is a bounded martingale and its one-step conditional variance admits an exact policy-dependent formula. Zero mandates can create closed inactive classes in which fiscal activity and learning stop together. On a finite approximation, we compute stationary equilibria with noisy signals, endogenous auditing, and spending-need shocks and certify them against every action in a common adaptive cloud. The equilibria display history-dependent limiting fiscal capacity, non-monotone auditing, and nonlinear responses to spending need: shocks leave mean reputation unchanged but alter its dispersion and exposure to the inactive region.

Keywords: Optimal taxation; Government reputation; Ramsey problem; Credibility; Fiscal capacity (search for similar items in EconPapers)
Date: 2026-10-21
Note: View the original document on HAL open archive server: https://hal.science/hal-05322290v2
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-05322290v2/document (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05322290

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().