Template-type: ReDIF-Paper 1.0
Author-Name: Alfonso Novales Cinca
Author-Email: anovales@ccee.ucm.es
Author-Person: pno7
Author-Workplace-Name: Departamento de Análisis Económico y Economía Cuantitativa, Facultad de  Ciencias Económicas y 
	Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid. Instituto Complutense de 
	Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid).
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Name: Rafaela María Pérez Sánchez
Author-Email: rmperezs@ccee.ucm.es
Author-Person: ppe352
Author-Workplace-Name: Departamento de Análisis Económico y Economía Cuantitativa, Facultad de  Ciencias Económicas y 
	Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid. Instituto Complutense de 
	Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid).
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Name: Jesús Rúiz Andújar
Author-Email: jruizand@ccee.ucm.es
Author-Person: pru170
Author-Workplace-Name: Departamento de Análisis Económico y Economía Cuantitativa, Facultad de  Ciencias Económicas y 
	Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid. Instituto Complutense de 
	Analisis Economico (ICAE) (UCM Institute for Economic Analysis), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid).
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Title: Optimal time-consistent fiscal policy in an endogenous growth economy with public consumption and capital
Abstract: In an endogenous growth model with public consumption and public investment, 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 show that under the time-consistent, Markov policy, the economy lacks any 
	transitional dynamics and also that there is local and global determinacy of equilibrium. We compare the 
	Markovian optimal policy with the Ramsey policy as well as with the solution to the planner’s problem under 
	lump-sum taxation. For empirically plausible parameter values we find that the Markov-perfect policy implies 
	a higher tax rate and a larger proportion of government spending allocated to consumption than those chosen 
	under a commitment constraint. As a result, economic growth is slightly lower under the Markov-perfect 
	policy than under the Ramsey policy, with growth under lump-sum taxes being highest.
Classification-JEL: E61, E62, H21.
Keywords: Time-consistency, Markov-perfect optimal policy, Ramsey optimal policy, Endogenous growth, Income tax rate, 
	Government spending composition.
Note: The authors thank financial support received from the Spanish Ministry of Science and Innovation through grant ECO2009-10398, 
	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.
Length: 36 pages
Creation-Date: 2013-06
Number: 2013-23
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1323.txt
File-URL: https://eprints.ucm.es/id/eprint/22129/1/1323.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1323