Time Consistent Policy and the Structure of Taxation

Arbeitspapier

It is now well known that "optimal" government policies may not be time consistent--that is, ex post optimal. Time consistency considerations can be shown to reverse the conclusions about the relative merits of different tax structures that are drawn from Ramsey type analysis. In this paper I show with the help of a simple overlapping generations model that this is the case for the "presumption" that direct taxes, for which tax rates can be made contingent on household characteristics, weakly dominate indirect taxes, which are levied on transactions. The ability of the government, with direct taxation, to levy different tax rates on households in different periods of their life-cycles introduces a time consistency problem that is not present with the "anonymous" tax rates levied under indirect taxation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 777

Classification and Topics

• Classification: Wirtschaft
• Subject: time consistency ; direct and indirect taxation ; overlapping generations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bruce, Neil
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 1990

Further information

• Handle: http://hdl.handle.net/10419/189103
• Last update: 10.03.2025, 11:43 AM CET