Abstract
Using a two-country dynamic optimization model where the less patient country decumulates and the more patient one accumulates wealth, we analyze spillover effects of lump-sum and consumption taxes. A lump-sum tax on a country definitely harms the other country through a change in the rate of interest. A lump-sum tax on either country always improves the less patient country's asset position. A consumption tax has no spillover effect, although it is Pareto-inferior. Applying these results into a closed-country context with heterogeneous agents, we also discuss policy implications of a discriminatory tax.
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Ono, Y., Ikeda, S. Fiscal policy, wealth divergence, and lifetime utility. Zeitschr. f. Nationalökonomie 64, 265–280 (1996). https://doi.org/10.1007/BF01250129
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DOI: https://doi.org/10.1007/BF01250129