The Timing of Government Debt Reductions in the Presence of Inequality

TKFD Working Paper Series No.20-01

Abstract

How will the timing of a consumption tax hike affect households? This paper uses the incomplete market model to assess the impact of a delay in a consumption tax hike. The results show that the welfare effect on households will differ according to one’s asset holdings: Poor households may prefer an earlier hike, since a delay will require an even larger increase at a later date, while rich people will prefer a later hike because this will result in bigger government debt, thereby exerting upward pressure on interest rates. The overall change in the social welfare will be determined by the endogenous distribution of assets.

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猪野明生/Akio Ino

Akio Ino

  • RESEARCH ASSISTANT

Areas of Expertise

Macroeconomics, fiscal policy, banking, quantitative macroeconomics (heterogeneous agent model)

Research Unit

Economic Policy Studies

小林 慶一郎/Keiichiro Kobayashi

Keiichiro Kobayashi

  • RESEARCH DIRECTOR

Areas of Expertise

  • Macroeconomics
  • financial crises
  • economic philosophy

Research Unit

Economic Policy Studies