The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption-based instruments in conjunction with the income tax. An income...

A dynamic analysis of the international transmission of government expenditure shocks under alternative methods of finance is presented. The benchmark case of lump-sum tax financing yields an expansion in both the short-run and the long-run levels of domestic activity, while crowding out...