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A One-Off Wealth Levy? Assessing the Pros and Cons and the Importance of Credibility*
- Source :
- Fiscal Studies. 37:821-849
- Publication Year :
- 2015
- Publisher :
- Wiley, 2015.
-
Abstract
- From an economic perspective, imposing a credibly one-off net wealth levy in times of crisis as a tool to ward off a national emergency appears to be advantageous as, in an ideal world, this would not distort market players’ allocation decisions. However, in practice, charging such a levy may give rise to distortions and unwanted effects on the real economy. Credibility that the levy will be imposed as a once-only measure is key to ensuring that harmful distortions in the allocation of resources are kept to a minimum. This paper confirms this using an analysis based on a dynamic stochastic general equilibrium (DSGE) model. In practice, while a government cannot guarantee that such a measure will be taken once only, it can contribute to the credibility of this in a number of ways. First, the country's future ‘business model’ must become apparent; second, there has to be a basic level of confidence in the government and a firm belief that the budgetary imbalances were not actively caused by the state – at least not by the government currently in power; third, a verifiable outlook of sustainable public finances must be in place; and fourth, the political costs of a repeat levy must be high. This paper also discusses the potential impact of alternative model set-ups as well as some practical implementation problems.
- Subjects :
- Economics and Econometrics
Government
Public economics
media_common.quotation_subject
05 social sciences
Business model
Ideal (ethics)
Microeconomics
Politics
State (polity)
Accounting
0502 economics and business
Credibility
Dynamic stochastic general equilibrium
Economics
National wealth
050207 economics
Finance
050205 econometrics
media_common
Subjects
Details
- ISSN :
- 01435671
- Volume :
- 37
- Database :
- OpenAIRE
- Journal :
- Fiscal Studies
- Accession number :
- edsair.doi...........55fcb38678f57ea4a6f9095e275d546b