Optimal Fiscal Policy with Endogenous Time Preference

Evangelos Dioikitopoulos and Sarantis Kalyvitis

Journal of Public Economic Theory, 2015, vol. 17, issue 6, 848-873

Abstract: This paper studies the role of Ramsey taxation under the assumption that the individual rate of time preference is determined by the publicly provided social level of education. We show how intertemporal complementarities of aggregate human capital can generate multiple equilibria and we examine the role of endogenous fiscal policies in equilibrium selection. Our analysis implies a lower optimal government size due to the effect of human capital on time preference.

Date: 2015
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