The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model

Ben Heijdra () and Jenny Ligthart

Oxford Economic Papers, 2000, vol. 52, issue 4, 677-701

Abstract: The paper studies the dynamic allocation effects of tax policy within the context of an overlapping-generations model of the Blanchard-Yaari type. The model is extended to allow for endogenous labour supply and three tax instruments, viz. a capital tax, labour income tax, and consumption tax. Both analytical expressions and simple diagrams are used to analyze the impact, transition, and long-run effects of tax policy changes. It is shown that a part of the long-run incidence of capital and consumption taxes falls on capital when households' horizons are finite whereas labour would fully bear the burden of these taxes in an infinite-horizon model. Copyright 2000 by Oxford University Press.

Date: 2000
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Working Paper: The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model (1998)
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