Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?

Konstantinos Angelopoulos (), Jim Malley and Apostolis Philippopoulos

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main ndings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce inefficiently high cap- ital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers inter- ests, regarding the optimal amount of "capitalist bias", are not aligned implying a trade-off between efficiency and equity.

Keywords: Optimal fiscal policy; Markov-perfect equilibrium; heterogenous agents (search for similar items in EconPapers)
JEL-codes: E62 H21 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Time-consistent fiscal policy under heterogeneity: conflicting or common interests? (2011)
Working Paper: Time-consistent Fiscal Policy under Heterogeneity: Conflicting or Common Interests? (2011)
Working Paper: Time-consistent fiscal policy under heterogeneity: Conflicting or common interests? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2011_06

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