Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189103 
Authors: 
Year of Publication: 
1990
Series/Report no.: 
Queen's Economics Department Working Paper No. 777
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
It is now well known that "optimal" government policies may not be time consistent--that is, ex post optimal. Time consistency considerations can be shown to reverse the conclusions about the relative merits of different tax structures that are drawn from Ramsey type analysis. In this paper I show with the help of a simple overlapping generations model that this is the case for the "presumption" that direct taxes, for which tax rates can be made contingent on household characteristics, weakly dominate indirect taxes, which are levied on transactions. The ability of the government, with direct taxation, to levy different tax rates on households in different periods of their life-cycles introduces a time consistency problem that is not present with the "anonymous" tax rates levied under indirect taxation.
Subjects: 
time consistency
direct and indirect taxation
overlapping generations
Document Type: 
Working Paper

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