TY  - JOUR
TI  - Ramsey Model with Financial Repression and Government Spending
T2  - HSE Economic Journal 
IS  - HSE Economic Journal 
KW  - Ramsey model
KW  - financial repression
KW  - productive government spending
KW  - optimal fiscal policy
KW  - crowding out effect
KW  - implicit labor tax
AB  - After the recent debt crisis governments of many developed and developing countries turned to the use of financial repression as a way of government spending financing along with explicit capital taxation. Financial repression can be considered as an implicit tax on capital, be cause it leads to the outflow of resources from investment to the government debt. We question what type of government spending financing is better: explicit or implicit tax on capital (financial repression). The criterion is the minimization of consumption crowding out effect in the steady-state where government spending can be of three types. We propose a Ramsey model mo­dification with financial repression and three types of government expenditures: wasteful, productive and one in the utility. There are two instruments of financial repression: artificial increase in debt demand and lowered government debt yield. We find that regardless of government spending type, the choice of the government, which guarantees maximum level of consumption or minimum crowding out in the steady state, is explicit tax on capital in the absence of financial repression (in the form of artificial increase in debt demand). The higher is artificial debt demand the bigger is the direct outflow of capital to the government debt and less is the average interest of savings, while increase in the explicit capital tax rate affects only the savings yield. However, increase in the explicit tax on capital and lowering debt yield leads to the same crowding out effect.
AU  - Olga Norkina
UR  - https://ej.hse.ru/en/2018-22-4/228587971.html
PY  - 2018
SP  - 631-661
VL  - 22