t] is funded by non-distortionary, lump-sum taxes
In the absence of an ability to use lump-sum taxes
, the optimal commodity tax structure is provided by Ramsey (1927).
In the absence of intergenerational redistribution through lump-sum taxes
and transfers, the constrained efficient competitive equilibrium requires optimal distortions on relative prices.
Previous work [Ellis and Auernheimer, 1996, "Stabilization under Capital Controls," Journal of International Money and Finance 15(4), 523-33] showed the private sector smoothes consumption prior to an anticipated fiscal reform consisting of an increase in lump-sum taxes
under a fixed exchange rate and no capital mobility.
We also allow governments to use lump-sum taxes
to finance public pollution abatement.
Even in the special case in which Weisbach's method is properly applied, the method assumes that lump-sum taxes
as well as income taxes will be employed.
Neoclassical growth models predict positive growth effects throughout the entire transition path after a reduction in capital or labor tax rates when lump-sum taxes
or transfers are used to balance the government budget.
Such a policy is feasible since the ratio of lump-sum taxes
(or transfers, if T is negative) to output can be readily shown to be less than one in absolute value.
Likewise, in contrast to the monetary policy literature with lump-sum taxes
, the authors find that, in their model, a government spending shock creating fiscal stress affects the optimal path of inflation and the output gap.
Governments have many tax tools at their disposal to redistribute wealth from one segment of the population to another, such as income, sales, and lump-sum taxes
(for example, setup fees for corporations).
These results are derived under the assumption that the government can employ lump-sum taxes
to balance its budget.
If our model is expanded to include lump-sum taxes
, increases in G financed by lump-sum taxes
borne only by the donor will completely crowd out donations.