Optimal Degree of Commitment in a Tax Policy

Yusuke Kinai ()
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Yusuke Kinai: Graduate School of Economics, Osaka University

No 11-11, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: In analyzing economic policies, a severe problem is the time-inconsistency problem. In this regard, the choice of commitment vs. discretion engenders a tradeoff of flexibility and credibility. Therefore, it might be necessary and acceptable to adopt a discretionary policy to some degree, but past studies do not clarify the degree to which a government exercises such a discretionary option. This paper clarifies the optimal degree of commitment using the framework of a repeated game reported by Chari and Kehoe (1990). We point out the relation between the optimal degree of commitment and the rate of time preference.

Keywords: Commitment vs. Flexibility; Degree of Commitment; Imperfect Public Monitoring; Repeated Games; Tax Policy. (search for similar items in EconPapers)
JEL-codes: E61 E62 H11 H30 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-03
New Economics Papers: this item is included in nep-mac and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1111

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