Fiscal policy with intertemporally non-separable preferences

Vol: 
14/2010
Author name: 
Bossi L
Gomis-Porqueras P
Year: 
2010
Month: 
April
Abstract: 

In this paper, we show that Ricardian equivalence does not hold in a representative agent framework if one considers goods whose current consumption affect future marginal utilities. We find that, when the intertemporal elasticity of substitution changes over time, the timing of lump sum taxation has an asymmetric effect on current and future consumption. This in turn induces distinctive welfare consequences even if the government and individual budget constraints are unchanged in present value terms.

Publication file: 

Updated:  27 October 2021/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin