Fiscal Policy Rules in an Overlapping Generations Model with Endogenous Labour Supply

Giovanni Ganelli

Economic Papers from Trinity College Dublin, Economics Department

Abstract: A fiscal policy rule in which taxation is a function of existing government debt (a "wealth-tax") is usually believed to be effective in providing stability. Using a dicrete-time version of Blanchard's overlapping generations model, extended to include money and an endogenous labour supply we show that, contrary to the intuition, a wealth tax might not be enough to ensure the existence of a unique, well defined, saddle-path equilibrium. We suggest that a government willing to run a positive and sustainable level of debt could use an alternative financing rule, imposing an additional tax component, that is a function of the difference between the real interest rate and the tax rate on wealth.

Date: 2002
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (3)

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Journal Article: Fiscal policy rules in an overlapping generations model with endogenous labour supply (2007)
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