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Working Paper

Tax Structure, Welfare, and the Stability of Equilibrium in a Model of Dynamic Optimal Fiscal Policy

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A demonstration that the assumed structure of taxation can have dramatic effects on economic welfare and on the stability of the steady state in a dynamic general-equilibrium model of optimal fiscal policy. The authors find that household welfare is highest under a structure that includes separate tax rates on labor and capital incomes, double taxation of dividends, and tax-deductible depreciation.
09.01.1994ISSN 2573-7953 WP 94-10DOI 10.26509/frbc-wp-199410

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Guo, Jang-Ting, and Kevin Lansing. 1994. “Tax Structure, Welfare, and the Stability of Equilibrium in a Model of Dynamic Optimal Fiscal Policy.” Federal Reserve Bank of Cleveland, Working Paper No. 94-10. https://doi.org/10.26509/frbc-wp-199410