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Optimal Degree of Commitment in a Tax Policy

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  • Yusuke Kinai

    (Graduate School of Economics, Osaka University)

Abstract

In analyzing economic policies, a severe problem is the time-inconsistency problem. In this regard, the choice of commitment vs. discretion engenders a tradeoff of flexibility and credibility. Therefore, it might be necessary and acceptable to adopt a discretionary policy to some degree, but past studies do not clarify the degree to which a government exercises such a discretionary option. This paper clarifies the optimal degree of commitment using the framework of a repeated game reported by Chari and Kehoe (1990). We point out the relation between the optimal degree of commitment and the rate of time preference.

Suggested Citation

  • Yusuke Kinai, 2011. "Optimal Degree of Commitment in a Tax Policy," Discussion Papers in Economics and Business 11-11, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1111
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1111.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Commitment vs. Flexibility; Degree of Commitment; Imperfect Public Monitoring; Repeated Games; Tax Policy.;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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