Optimal policy with credibility concerns

• 成果类型: Article
• 署名作者: Lu, Yang K.
• 署名单位: Hong Kong University of Science & Technology
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.04.015
• 发表日期: 2013
• 页码: 2007-2032
• 关键词: Imperfect credibility; Reputation game; optimal taxation; time inconsistency

摘要

This paper considers a reputation model of optimal taxation in which the public is unsure about the government type. A long-lived government can be trustworthy (meaning that it commits to its announced tax rate) or opportunistic (meaning that it retains the ability to change its tax rate after announcing it). Unlike in most prior studies, the committed strategy in this model is optimally chosen by the trustworthy type. We show that this change has significant consequences for the equilibrium dynamics The optimal committed strategy is found to vary with the time preferences of the two government types, the initial reputation of the government, and the elasticity of household production. This formulation explains differences in policy responses across governments in the face of similar credibility problems. (C) 2013 Elsevier Inc. All rights reserved.