Debt and Taxes

John S Flemming

Scottish Journal of Political Economy, 1988, vol. 35, issue 4, 305-17

Abstract: It is argued that, in the absence of poll taxes, it is the tax rate, rather than the debt/income ratio, that should be (ex ante) stabilized. In a two-state world with constant transition probabilities, optimally, periods of deficit (surplus) are associated with high (low) and rising (falling) taxes whether shocks are to preferences or technology. Consumption has distinctive advantages over labor income as the tax base in this stochastic context. Issues of debt maturity (in a closed economy), time inconsistency, endogenous transition probabilities, political tactics, investment, and unemployment are also considered. Copyright 1988 by Scottish Economic Society.

Date: 1988
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