Regime-switching debt and taxation

  title={Regime-switching debt and taxation},
  author={Troy Davig},
  • Troy Davig
  • Published 2004
The effects of changes to the tax rate are studied within a framework where an estimated regime-switching process for the debt-output ratio is embedded in a standard growth model. The regime is a hidden state variable, so agents face a signal extraction problem. Consequently, agents incorporate the possibility of switching to different fiscal regimes when forming expectations over future taxes. Decision rules have additional nonlinearity relative to fixed-regime models. Income allocation and… CONTINUE READING
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