Cover IMF Working Papers
Optimal Intertemporal Taxationon Consumption and the Term Structure of Government Debt
Author: International Monetary Fund
Series:
IMF Working Papers
Volume/Issue:
Volume 1988: Issue 115
Language:
English
Publication Date:
01 Jan 1988
DOI:
https://doi.org/10.5089/9781451942729.001
ISBN:
9781451942729
ISSN:
1018-5941
Pages:
20
Keywords:
WP; tax rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper addresses the time-consistency problem of optimal policy when intertemporal prices are inflexible. For small, open economies facing given world interest rates, it shows that a consumption tax, rather than a tax on wage income, is time-consistent under a variety of circumstances, even including some cases where the optimal tax rate is not constant over time. This result, when it applies, restores the neutrality of the term structure of government debt, and reaffirms the tax-smoothing theory of debt determination.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund