Public spending and optimal taxes without commitment (Q1601997)
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| Language | Label | Description | Also known as |
|---|---|---|---|
| English | Public spending and optimal taxes without commitment |
scientific article |
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Public spending and optimal taxes without commitment (English)
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4 September 2002
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This paper presents a model of a productive economy that requires public capital. This capital is financed by a distortionary tax. The (second-best) optimal fiscal policy is time inconsistent. This paper computes the (third-best) optimal fiscal policy subject to the requirement of time consistency. Of course, a superior policy would be to replace the distortionary tax by a non-distortionary one.
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third best
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time inconsistency
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distortionary tax
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