DP768 Optimal Tax Policy, Government Myopia and Insolvency
Author(s): | Paul L Levine, Joseph Pearlman |
Publication Date: | May 1993 |
Keyword(s): | Government Myopia, Optimal Taxation, Solvency |
JEL(s): | C61, E62, H21 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=768 |
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.