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The objective of this article is to explicitly examine macroeconomic issues without embracing the market imperfections of fixed prices, missing markets and money illusion, found in conventional macroeconomic analysis. It discusses the impact of alternative fiscal policies in a dynamic general equili...
The objective of this article is to explicitly examine macroeconomic issues without embracing the market imperfections of fixed prices, missing markets and money illusion, found in conventional macroeconomic analysis. It discusses the impact of alternative fiscal policies in a dynamic general equilibrium model and examines the short-run effects of fiscal policy changes, the efficiency cost of alternative dynamic tax policies and the redistributive effects of factor taxation. This paper has reviewed some aspects of the theory of dynamic factor taxation in a rational expectations, representative agent model of dynamic general equilibrium. Many important extensions are desirable, particularly the incorporation of uncertainty in production and rigorous modeling of the determination of policy choices in the political arena. Finally, it has been shown that this model can be used to examine the impact of dynamic taxation policy, anticipated and unanticipated, certain and uncertain, on resource allocation decisions, efficiency and the distribution of wealth.
