Economics Seminar: Time-consistent fiscal policy under heterogeneity: Conflicting or Common interest?

When?

Wednesday 18 May 2011, 16:00 to 17:00

Where?

04AD00

Open to:

Public, Staff, Students

Speaker:

Prof Apostolis Philippopoulos (University of Glasgow)

Prof Apostolis Philippopoulos (University of Glasgow)

"Time-consistent fiscal policy under heterogeneity: Conflicting or Common interest?" (with , J. Malley, A.Philippopoulos)

Abstract

We study the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Following Krusell et al. (2002) and Klein et al. (2008), we focus on the steady-state of Markov-perfect equilibria working with differentiable Generalized-Euler Equations (GEE) and using their numerical perturbation algorithm for the computation of the steady-state. We answer the following questions: What is the time-consistent optimal mix of capital and labour taxes and the associated optimal provision of public goods?  Does the lack of commitment hurt all agents in the economy? And, if yes, are there any substitutes for commitment?  Finally, can there be changes in the policy design that are Pareto improving? Or, is it unavoidable to have a conflict of interests between agents under time-consistent policy, in contrast to Ramsey policy?