Tag Archives: German unification

“Tax Smoothing versus Tax Shifting,” RED, 2004

Review of Economic Dynamics 7, January 2004. PDF.

Household-specific growth rates of the tax base imply that the timing of tax collections determines the distribution of tax burdens and wealth across households. Changes in fiscal policy do not only shift tax burdens across generations, but also within cohorts. Institutional deficit constraints settle tax shifting conflicts in favor of individuals with high income growth. With distortionary taxes, policy makers trade off the relative wealth effects of fiscal policy and the efficiency cost of household specific deadweight burdens. I apply the incidence analysis of fiscal policy to answer the question how the German unification should have optimally been financed.