Dynamic Tax Smoothing with Financial Instruments

Anders Paalzow ()
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Anders Paalzow: Department of Economics, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden

No 147, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: This paper discusses dynamic tax smoothing with financial instruments within a two-period deterministic framework where the interest rate is endogenously determined and affected by fiscal policy. The analysis focusses on the timing of taxes and how the interest rate affects the costs for tax smoothing through public debt. It shows that elasticity of the interest rate with respect to the supply of government-issued bonds is crucial when characterizing the optimal path of taxes.

Keywords: optimal; taxation; and; public; debt (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Pages: 12 pages
Date: 1996-12
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0147

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