The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model

December 1, 1998

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Format: Chicago

Ben J. Heijdra, and Jenny E Ligthart. The Dynamic Macroeconomic Effects of Tax Policy in an Overlapping Generations Model, (USA: International Monetary Fund, 1998) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper studies the dynamic allocation effects of tax policy in the context of an overlapping generations model of the Blanchard-Yaari type. The model is extended to allow for endogenous labor supply and three tax instruments: a capital income tax, labor income tax, and consumption tax. Analytical expressions and simple diagrams are used to discuss the impact, transition, and long-run effects of tax policy changes. It is shown that a part of the long-run incidence of capital and consumption taxes falls on capital when households’ horizons are finite, whereas labor would fully bear the burden of these taxes in an infinite horizon model.

Subject: Consumption, Consumption taxes, Labor supply, Labor taxes, Stocks

Keywords: Capital stock, Rate of interest, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/182
Stock No:

WPIEA1821998
ISBN:

9781451859249
ISSN:

1018-5941

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