Anticipation, Learning and Welfare: the Case of Distortionary Taxation
Emanuel Gasteiger and
No 2013-50, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)
We study the impact of anticipated fiscal policy changes in a Ramsey economy where agents form long-horizon expectations using adaptive learning. We extend the existing framework by introducing distortionary taxes as well as elastic labour supply, which makes agents. decisions non-predetermined but more realistic. We detect that the dynamic responses to anticipated tax changes under learning have oscillatory behaviour that can be interpreted as self-fulfilling waves of optimism and pessimism emerging from systematic forecast errors. Moreover, we demonstrate that these waves can have important implications for the welfare consequences of .scal reforms. (JEL: E32, E62, D84)
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Journal Article: Anticipation, learning and welfare: the case of distortionary taxation (2014)
Working Paper: Anticipation, learning and welfare: the case of distortionary taxation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:477
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