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 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 under endogenous growth with elastic labour supply
Abstract: 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.
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 
	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.
Length: 34 pages
Creation-Date: 2013-06
Number: 2013-24
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1324.txt
File-URL: https://eprints.ucm.es/id/eprint/22133/1/1324.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1324