@techreport{Occhino2005Optimal,
abstract = {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.},
author = {Filippo Occhino},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {E62; 330; Fiscal policy; Commitment; Time-consistency; Ramsey equilibrium; Markov perfect equilibria; Sustainable equilibria; Finanzpolitik; \"{O}ffentliche Ausgaben; Konjunktur; Einkommensteuer; Optimale Besteuerung; Theorie},
language = {eng},
number = {2005,02},
title = {Optimal fiscal policy over the business cycle},
type = {Working papers / Rutgers University, Department of Economics},
url = {http://hdl.handle.net/10419/23239},
year = {2005}
}