SSE/EFI Working Paper Series in Economics and Finance
Dynamic Tax Smoothing with Financial Instruments
Abstract: This paper discusses dynamic tax smoothing with financial
instruments within a two-period deterministic framework where the interest
rate is endogenously determined and affected by fiscal policy. The analysis
focusses on the timing of taxes and how the interest rate affects the costs
for tax smoothing through public debt. It shows that elasticity of the
interest rate with respect to the supply of government-issued bonds is
crucial when characterizing the optimal path of taxes.
Keywords: optimal taxation and public debt; (follow links to similar papers)
JEL-Codes: H21; (follow links to similar papers)
12 pages, December 1996
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