Abstract

http://ssrn.com/abstract=1874003
 
 

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Fiscal Policy and the Distribution of Consumption Risk


Mariano Massimiliano Croce


University of North Carolina Kenan-Flagler Business School

Thien Tung Nguyen


Ohio State University (OSU) - Department of Finance

Lukas Schmid


Duke University - The Fuqua School of Business

October 18, 2013


Abstract:     
This paper studies fiscal policy design in an economy in which (i) the representative household has recursive preferences, and (ii) growth is endogenously sustained through innovations whose market value depends on the tax system. By reallocating tax distortions through debt, fiscal policy alters both the composition of intertemporal consumption risk and the incentives to innovate. Tax policies aimed at short-run stabilization may substantially increase long run tax and growth risks and reduce both average growth and welfare. In contrast, policies oriented toward long-run stabilization increase growth, wealth and welfare by lowering the slope of the term structure of equity yields.

Number of Pages in PDF File: 49

Keywords: Fiscal Policy, Endogenous Growth, Recursive Preferences, Welfare Costs

JEL Classification: E62, G1, H2, H3

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Date posted: June 29, 2011 ; Last revised: October 18, 2013

Suggested Citation

Croce, Mariano Massimiliano and Nguyen, Thien Tung and Schmid, Lukas, Fiscal Policy and the Distribution of Consumption Risk (October 18, 2013). Available at SSRN: http://ssrn.com/abstract=1874003 or http://dx.doi.org/10.2139/ssrn.1874003

Contact Information

Mariano Massimiliano Croce (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
Chapel Hill, NC 27599-3490
HOME PAGE: http://homepages.nyu.edu/~mmc287

Thien Tung Nguyen
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
Lukas Schmid
Duke University - The Fuqua School of Business ( email )
Durham, NC 27708-0120
United States
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