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N° 2002-14 |
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| November |
| When are Structural Deficits Good Policies? |
| Jean Chateau |
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| This paper analyses the marginal
allocative and welfare effects of various structural budget-deficits in a representative-agent
model where the Ricardian equivalence Theorem does not hold because of distortionary
taxation. In order to carry out this analysis we perform numerical examples based
upon a parameterized “typical" European economy. The paper shows that
temporary and partially income tax-cuts like public investment spending deficits
may correspond to welfare-enhanced and self-financed policies. However, for plausible
range of parameters and tax rates deficit-financed public investment policies
may actually be self-financed whereas dynamic Laffer curves seem to be ruled out
for tax cuts policies. |
Abstract |
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| Deficit Finance, Public Capital,
Distortionary Taxation, Intertemporal Choice. |
Keywords |
| D9, E62, H4, H6. |
JEL classification |
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