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

Author/Editor:

Ben J. Heijdra ; Jenny E Ligthart

Publication Date:

December 1, 1998

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 1998/182

Subject:

Consumption Consumption taxes Labor supply Labor taxes Stocks

English

Publication Date:

December 1, 1998

ISBN/ISSN:

9781451859249/1018-5941

Stock No:

WPIEA1821998

Pages:

29

Please address any questions about this title to publications@imf.org