TY - JOUR
T1 - Time-consistent optimal fiscal policy
AU - Klein, Paul
AU - Ríos-Rull, José Víctor
PY - 2003/11
Y1 - 2003/11
N2 - This article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period's capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.
AB - This article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period's capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.
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U2 - 10.1111/1468-2354.t01-1-00107
DO - 10.1111/1468-2354.t01-1-00107
M3 - Review article
AN - SCOPUS:0344980749
SN - 0020-6598
VL - 44
SP - 1217
EP - 1245
JO - International Economic Review
JF - International Economic Review
IS - 4
ER -