Time-Consistent Consumption Taxation

Sarolta Laczó () and Raffaele Rossi

No 1508, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We characterise optimal fiscal policies in a Real Business Cycle model when the government has access to consumption taxation but cannot credibly commit to future policies. Contrary to the case where only labour and capital income are taxed, the optimal time-consistent policies are remarkably similar to their Ramsey counterparts, as long as the capital income tax causes some distortion within the period. The welfare gains from commitment are negligible, while they are substantial without consumption taxation. Further, the welfare gains from taxing consumption are much higher without commitment. These results suggest that the policy-maker's ability to commit is of secondary importance if consumption is taxed optimally.

Keywords: Fiscal Policy; Markov-perfect Policies; Consumption Taxation; Variable Capital Utilisation; Endogenous Government Spending (search for similar items in EconPapers)
JEL-codes: E62 H21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Time-consistent consumption taxation (2020)
Working Paper: Time-Consistent Consumption Taxation (2018)
Working Paper: Time-consistent consumption taxation (2015)
Working Paper: Time-consistent consumption taxation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1508

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