Macroeconomic Effect of Consumption Tax on ”Dynamic” and ”Myopic” Agents

Fujisaki, Seiya (2016): Macroeconomic Effect of Consumption Tax on ”Dynamic” and ”Myopic” Agents.

Abstract

We analyze the effect of consumption tax on the economy with heterogeneous agents, that is, with a dynamic capitalist and a myopic worker. We suppose that the revenue which is raised for government expenditure and is included in the worker’s utility is only from consumption tax and that the constant tax rate for each agent may be different. We theoretically find that it is beneficial for all agents if the capitalist as the dynamic agent becomes more patient and increases his ”spirit of capitalism”, whereas controlling tax rates faces a trade-off between the economic scale and the difference of agent, although heterogeneous taxes may have different effects to some extent.

• Item Type: MPRA Paper
• Language: English
• Keywords: government expenditure in utility, consumption tax, heterogeneous agents, dynamic and myopic
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General

References

Andr´es, J., Bosc´a, J., E., and Ferri, J., 2016. Instruments, rules and household debt: the effects of fiscal policy, Oxford Economic Papers 68, 2, 419-443.

Bambi, M., and Venditti, A., 2016. Time-varying Consumption Tax, Productive Government Spending, and Aggregate Instability, Discussion Papers in Economics Department of Economics and Related Studies University of York, 16/01, 1-35.

Chen, H-J., and Guo, J-T., 2009. Social Status and the Growth Effect of Money, The Japanese Economic Review 60, 1, 133-141.

Chen, H-J., and Guo, J-T., 2011. Money, Social Status and Endogenous Growth in a Generalized Cash-in-Advance Model, Pacific Economic Review 16, 3, 267-284.

Di Bartolomeo, G., and Rossi, L., 2007. Heterogeneous Consumers,Demand Regimes, Monetary Policy and Equilibrium Determinacy,Rivista di Politica Economica 97, 5, 111-142.

Fujisaki, S., 2012. Optimal fiscal policy with social status and productive government expenditure. Economics Bulletin 32, Issue 1,960-968.

Guo, J.-T., and Harrison, S., G., 2008. Useful Government Spending and Macroeconomic (In)stability under Balanced-Budget Rules,Journal of Public Economic Theory 10-3, 383-397.

Hori, T., and Maebayashi, N., 2013. Indeterminacy and utility-generating government spending under balanced-budget fiscal policies. Discussion Papers In Economics And Business, Graduate School of Economics, Osaka University, No.13-13, 1-22.

Kamiguchi, A., and Tamai, T., 2011. Can productive government spending be a source of equilibrium indeterminacy?, Economic Modelling 28, 1335-1340.

McKnight, S., 2016. Are Consumption Taxes Preferable to Income Taxes in Preventing Macroeconomic Instability?, Macroeconomic Dynamics, forthcoming.

Mino, K., and Nakamoto, Y., 2012. Consumption externalities and equilibrium dynamics with heterogeneous agents, Mathematical Social Sciences 64, 225-233.

Tamai, T., 2008. Optimal fiscal policy in an endogenous growth model with public capital: a note, Journal of Economics 100, No.2, 141-163.