Fiscal Policy in Debt Constrained Economies
Manuel Amador and
Additional contact information
Mark Aguiar: University of Rochester
No 527, 2011 Meeting Papers from Society for Economic Dynamics
We study optimal fiscal policy in a small open economy (SOE) with sovereign and private default risk. The SOE's government uses linear taxation to fund exogenous expenditures and uses public debt to inter-temporally allocate tax distortions. We characterize a class of environments in which the tax on labor goes to zero in the long run, while the tax on capital income may be non-zero,reversing the standard prediction of the Ramsey tax literature. The zero labor tax is an optimal long run outcome if the private agents are impatient relative to the international interest rate and the economy is subject to private and/or sovereign debt constraints. We show that a similar result holds in a closed economy with imperfect inter-generational altruism.
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Working Paper: Fiscal Policy in Debt Constrained Economies (2015)
Working Paper: Fiscal Policy in Debt Constrained Economies (2011)
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:red:sed011:527
Access Statistics for this paper
More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().