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

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

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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.

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