Fiscal policy,wealth divergence,and lifetime utility |
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Authors: | Yoshiyasu Ono Shinsuke Ikeda |
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Affiliation: | (1) Present address: Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka, 567 Ibaraki, Osaka, Japan |
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Abstract: | Using a two-country dynamic optimization model where the less patient country decumulates and the more patient one accumulates wealth, we analyze spillover effects of lump-sum and consumption taxes. A lump-sum tax on a country definitely harms the other country through a change in the rate of interest. A lump-sum tax on either country always improves the less patient country's asset position. A consumption tax has no spillover effect, although it is Pareto-inferior. Applying these results into a closed-country context with heterogeneous agents, we also discuss policy implications of a discriminatory tax. |
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Keywords: | fiscal spending heterogeneous agents lifetime utility |
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