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Fiscal Policy Through Time-Varying Tax Rates: If and How
Author:
Mr. Martin D Kaufman
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 170
Language:
English
Publication Date:
01 Oct 2000
DOI:
https://doi.org/10.5089/9781451858419.001
ISBN:
9781451858419
ISSN:
1018-5941
Pages:
25
Keywords:
WP; tax rate; Counter-cyclical fiscal policy; taxation; credit constraint; hyperbolic discounting; consumption path; constraint multiplier; allocation of consumption; liquidity constraint; Consumption; Consumption taxes; Labor supply; Credit
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 investigates if there are circumstances where time-varying tax rates could improve welfare and whether such policy can effectively be implemented in practice. While, in principle, variable taxes could improve welfare in some cases, the paper highlights the very particular circumstances that need to prevail. With liquidity constraints, a consumption-tax break is in a better footing to boost consumption and welfare than an income-tax break. A hike in consumption taxes can also be used to restrain consumption and improve welfare under time-consistency problems induced by hyperbolic discounting. However, variable taxes are subject to serious implementation problems fettering their use.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2000: Issue 170