Optimal time-consistent taxation with default

Karen Kopecky and Anastasios Karantounias

No 1297, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We study optimal time-consistent distortionary taxation when the repayment of government debt is not enforceable. The government taxes labor income or issues non-contingent debt in order to finance an exogenous stream of stochastic government expenditures. The government can repudiate its debt subject to some default costs. Our setup blends elements of time-consistent fiscal policy and the sovereign default literature.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-pbe
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Working Paper: Optimal Time-Consistent Taxation with Default (2017)
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