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Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?

By Konstantinos Angelopoulos, James Malley and Apostolis Philippopoulos

Abstract

This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main fi ndings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce ine¢ ciently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of "capitalist bias", are not\ud aligned implying a conflict of interests

Topics: Optimal fi scal policy, Markov-perfect equilibrium, heterogeneous agents
Publisher: Athens University
Year: 2011
OAI identifier: oai:repo.sire.ac.uk:10943/287
Provided by: SIRE

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