Seminar Papers,
Stockholm University, Institute for International Economic Studies

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

JEL-codes: E61; E62; H63

30 pages, May 16, 2002

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