Optimal fiscal policy over the business cycle:
How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government expenditures,...
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| Format: | Book |
|---|---|
| Language: | English |
| Published: |
[New Brunswickk, NJ]
[Rutgers Univ., Dep. of Economics]
2005
|
| Series: | Working papers
2005,02 |
| Online Access: | Volltext |
| Summary: | How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government expenditures, only distortionary labor income taxes are available, and the cycle is driven by exogenous technology shocks. We first consider the commitment case, and characterize the Ramsey equilibrium. In the case that the utility function is constant elasticity of substitution between private and public con- sumption and separable between the composite consumption good and leisure, taxes, government expenditures and the primary surplus should all be constant positive frac- tions of production, and both government liabilities and the fiscal surplus should be positively correlated with production. Then, we relax the commitment assumption, and we show how to determine numerically whether the Ramsey equilibrium can be sustained by the threat to revert to a Markov perfect equilibrium. We find that, for realistic values of the preferences discount factor, the Ramsey equilibrium is sustain- able. Keywords: Fiscal policy, Commitment, Time-consistency, Ramsey equilibrium, Markov perfect equilibria, Sustainable equilibria. |
| Physical Description: | 36 S. graph. Darst. |
| Format: | . - Acrobat reader |
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| 520 | 8 | |a How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government expenditures, only distortionary labor income taxes are available, and the cycle is driven by exogenous technology shocks. We first consider the commitment case, and characterize the Ramsey equilibrium. In the case that the utility function is constant elasticity of substitution between private and public con- sumption and separable between the composite consumption good and leisure, taxes, government expenditures and the primary surplus should all be constant positive frac- tions of production, and both government liabilities and the fiscal surplus should be positively correlated with production. Then, we relax the commitment assumption, and we show how to determine numerically whether the Ramsey equilibrium can be sustained by the threat to revert to a Markov perfect equilibrium. We find that, for realistic values of the preferences discount factor, the Ramsey equilibrium is sustain- able. Keywords: Fiscal policy, Commitment, Time-consistency, Ramsey equilibrium, Markov perfect equilibria, Sustainable equilibria. | |
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| spelling | Optimal fiscal policy over the business cycle Filippo Occhino [New Brunswickk, NJ] [Rutgers Univ., Dep. of Economics] 2005 36 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier Working papers 2005,02 How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government expenditures, only distortionary labor income taxes are available, and the cycle is driven by exogenous technology shocks. We first consider the commitment case, and characterize the Ramsey equilibrium. In the case that the utility function is constant elasticity of substitution between private and public con- sumption and separable between the composite consumption good and leisure, taxes, government expenditures and the primary surplus should all be constant positive frac- tions of production, and both government liabilities and the fiscal surplus should be positively correlated with production. Then, we relax the commitment assumption, and we show how to determine numerically whether the Ramsey equilibrium can be sustained by the threat to revert to a Markov perfect equilibrium. We find that, for realistic values of the preferences discount factor, the Ramsey equilibrium is sustain- able. Keywords: Fiscal policy, Commitment, Time-consistency, Ramsey equilibrium, Markov perfect equilibria, Sustainable equilibria. . - Acrobat reader Occhino, Filippo Sonstige (DE-588)131828924 oth http://opus.zbw-kiel.de/volltexte/2006/4048/pdf/2005-02.pdf kostenfrei Volltext |
| spellingShingle | Optimal fiscal policy over the business cycle |
| title | Optimal fiscal policy over the business cycle |
| title_auth | Optimal fiscal policy over the business cycle |
| title_exact_search | Optimal fiscal policy over the business cycle |
| title_full | Optimal fiscal policy over the business cycle Filippo Occhino |
| title_fullStr | Optimal fiscal policy over the business cycle Filippo Occhino |
| title_full_unstemmed | Optimal fiscal policy over the business cycle Filippo Occhino |
| title_short | Optimal fiscal policy over the business cycle |
| title_sort | optimal fiscal policy over the business cycle |
| url | http://opus.zbw-kiel.de/volltexte/2006/4048/pdf/2005-02.pdf |
| work_keys_str_mv | AT occhinofilippo optimalfiscalpolicyoverthebusinesscycle |