Working Paper: NBER ID: w2680
Authors: Miles S. Kimball; N. Gregory Mankiw
Abstract: This paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely-lived households having uncertain and heterogeneous incomes. The special structure of the model allows exact aggregation across households despite incomplete markets. The effects of government debt are shown to be substantial, roughly comparable to those resulting from finite horizons, and crucially dependent on the length of time until the debt is repaid. Also, anticipated changes in taxes are shown to cause anticipated changes in consumption. Finally, an index of fiscal stance is derived.
Keywords: precautionary saving; tax timing; government debt; consumption; income uncertainty
JEL Codes: E21; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| timing of income taxes (H26) | consumption (E21) |
| anticipated changes in taxes (H29) | anticipated changes in consumption (D12) |
| tax reschedulings (H20) | consumption (E21) |
| government debt (H63) | consumption (E21) |
| absence of aggregate uncertainty (D89) | precautionary saving effect (E21) |