The Inconsistency Puzzle Resolved: an Omitted Variable
Nikolay Arefiev ()
MPRA Paper from University Library of Munich, Germany
We find that the contemporary version of the dynamic Ramsey problem omits one important variable that we take into consideration in this paper. The effect of introducing of this variable into the analysis of dynamic inconsistency is similar to that of introducing expected inflation into the Phillips curve: we show that only a policy surprise affects the attainable resource allocation set and the optimal policy. In contrast to Chamley (1986), we show that intensive capital income taxation at the beginning of optimal policy does not imply a lump-sum taxation of household wealth and cannot reduce the excess tax burden. We also demonstrate that the Ramsey policy is dynamically consistent even without commitment. We resolve the Ramsey problem and compare our results to those of Chamley on optimal capital income taxation.
Keywords: Inconsistency; Equilibrium policy; Optimal taxation (search for similar items in EconPapers)
JEL-codes: E62 H21 E61 (search for similar items in EconPapers)
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 (1) Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/9300/4/MPRA_paper_9300.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/10244/1/MPRA_paper_10244.pdf revised version (application/pdf)
Working Paper: The Inconsistency Puzzle Resolved: an Omitted Variable (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9300
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().