Optimal Time-Consistent Taxation with Overlapping Generations
نویسنده
چکیده
The paper analyzes optimal time-consistent taxation in an overlapping generations model with two-period lived households. The government chooses tax rates and borrowing to finance an exogenous stream of expenditures. It cannot commit to future policies, so announced policies that are not time consistent are not credible. Dynamic programming is used to derive Markov-perfect equilibria. In contrast to optimal fiscal policy in representative-agent models with commitment, optimal capital income tax rates are positive in the long run, and bounded below one in the short run for a wide range of parameter values.
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