Scandinavian Working Papers in Economics
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Institute for International Economic Studies, Stockholm University Seminar Papers, Institute for International Economic Studies, Stockholm University

No 711:
Tax Smoothing versus Tax Shifting

Dirk Niepelt ()

Abstract: Household-specific growth rates of the tax base imply that the timing of tax collections determines the distribution of tax burdens and wealth across households. Changes in financial policy do not only shift taxes across generations, but also within cohorts. Institutional deficit constraints settle tax shifting conflicts in favor of individuals with high income growth. With distortionary taxes, policy makers trade off the wealth effects of financial policy and the efficiency cost of household-specific deadweight burdens. I apply the incidence analysis of financial policy to two examples: The financing of the German unification, and the timing of tax collections over the U.S. business cycle.

Keywords: Optimal Financial Policy; government debt; income distribution; time consistency; (follow links to similar papers)

JEL-Codes: E61; E62; H63; (follow links to similar papers)

30 pages, May 16, 2002

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This paper is published as:
Niepelt, Dirk, (2004), 'Tax Smoothing versus Tax Shifting', Review of Economic Dynamics, Vol. 7, January, pages 27-51

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