Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96815
Authors: 
Angelopoulos, Konstantinos
Asimakopoulos, Stylianos
Malley, Jim
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4744
Abstract: 
This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, significantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government finds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under flexible skill supply.
Subjects: 
skill premium
tax smoothing
optimal fiscal policy
JEL: 
E13
E32
E62
Document Type: 
Working Paper

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