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Title: Optimal Tax Policy, Government Myopia and Insolvency

Author(s): Paul L Levine and Joseph Pearlman

Publication Date: May 1993

Keyword(s): Government Myopia, Optimal Taxation and Solvency

Programme Area(s): International Macroeconomics

Abstract: This paper explores the relationship between the myopia, the solvency and the reputation of a government choosing the optimal financing policy given a particular path of government spending. A central result is the demonstration of a logical link between government myopia and insolvency in the sense that there is a class of models for which a solution to the optimal taxation problem does not exist. Results are shown analytically for a very simple non-monetary economy, for a seigniorage model examined by Obstfeld and, using simulations, for a more developed non-Ricardian model with capital.

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Bibliographic Reference

Levine, P and Pearlman, J. 1993. 'Optimal Tax Policy, Government Myopia and Insolvency'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=768