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Optimal Fiscal Policy with Recursive Preferences
2013
Social Science Research Network
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I study the implications of recursive utility for the design of optimal fiscal policy. I find that the standard policy prescriptions of the dynamic Ramsey literature are dramatically altered. Labor tax volatility is optimal and can be quantitatively substantial. Furthermore, labor taxes are countercyclical, display persistence independent of the stochastic properties of exogenous shocks and increase on average over time. At the intertemporal margin, there is a novel incentive for introducing
doi:10.2139/ssrn.2317578
fatcat:huq67r2wnrejdkr4mj2zaffmxu