Time-consistent consumption taxation

Sarolta Laczo and Raffaele Rossi

No 67495267, Working Papers from Lancaster University Management School, Economics Department

Abstract: We characterise optimal fiscal policies when the government has access to consumption taxation but cannot credibly commit to future policies, in a calibrated Real Business Cycle model of the United States economy. 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)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
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 (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:67495267

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