RT Report
T1 Optimal time-consistent fiscal policy under endogenous growth with elastic labour supply
A1 Novales Cinca, Alfonso Santiago
A1 Pérez Sánchez, Rafaela María
A1 Ruiz Andújar, Jesús
AB In an endogenous growth model with public consumption and investment and an elastic labour supply, we explore the time-consistent optimal choice for two policy instruments: an income tax rate and the split of government spending between consumption and investment. We compare the Markovian optimal policy with the Ramsey policy, extending previous works that characterized optimal fiscal policy either in an exogenous growth framework, assuming an exogenously given split of income between consumption and investment, or an inelastic supply of labour. The Markov-perfect policy implies a higher income tax rate. To compensate for the lower disposable income, a larger proportion of government spending is allocated to consumption than those chosen under a commitment constraint on the part of the government. As a result, economic growth is slightly lower under the Markov-perfect policy than under the Ramsey policy. The welfare loss relative to the benevolent planner’s solution is mainly due to the difference in growth rates.
YR 2013
FD 2013
LK https://hdl.handle.net/20.500.14352/41492
UL https://hdl.handle.net/20.500.14352/41492
LA eng
NO JEL classification: E61, E62, H21.The authors thank financial support received from the Spanish Ministry of Science and Innovation through grant ECO2012-31941, the Research Groups funding program by Universidad Complutense de Madrid and Banco Santander, the Xunta de Galicia through Grant 10PXIB300177PR and the Research Grant program in Economics at Fundación Ramón Areces.
NO España. Ministerio de Ciencia e Innovación
NO Universidad Complutense de Madrid
NO Banco de Santander
NO Xunta de Galicia
NO Fundación Ramón Areces
DS Docta Complutense
RD 11 abr 2025