Arbeitspapier
Optimal time-consistent taxation with default
We study optimal time-consistent distortionary taxation when the repayment of government debt is not enforceable. The government taxes labor income or issues noncontingent debt in order to finance an exogenous stream of stochastic government expenditures. The government can repudiate its debt subject to some default costs, thereby introducing some state-contingency to debt. We are motivated by the fact that domestic sovereign default is an empirically relevant phenomenon, as Reinhart and Rogoff (2011) demonstrated. Optimal policy is characterized by two opposing incentives: an incentive to postpone taxes by issuing more debt for the future and an incentive to tax more currently in order to avoid punishing default premia. A generalized Euler equation (GEE) captures these two effects and determines the optimal back-loading or front-loading of tax distortions.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper ; No. 2017-12
- Klassifikation
-
Wirtschaft
Incomplete Markets
Interest Rates: Determination, Term Structure, and Effects
Fiscal Policy
Taxation and Subsidies: Efficiency; Optimal Taxation
National Debt; Debt Management; Sovereign Debt
- Thema
-
labor tax
sovereign default
Markov-perfect equilibrium
time-consistency
generalized Euler equation
long-term debt
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Karantounias, Anastasios G.
- Ereignis
-
Veröffentlichung
- (wer)
-
Federal Reserve Bank of Atlanta
- (wo)
-
Atlanta, Ga.
- (wann)
-
2017
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Karantounias, Anastasios G.
- Federal Reserve Bank of Atlanta
Entstanden
- 2017
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