Optimal Taxation with Private Government Information
AbstractThe Ramsey model of fiscal policy implies that taxes should be smooth in the sense of having small variances. In contrast, empirical labour tax processes are smooth in the sense of being random walks; they provide prima facie evidence for incomplete government insurance. This paper considers whether private government information might lie behind such incomplete insurance. It shows that optimal incentive compatible policies exhibit limited use of state contingent debt and greater persistence in taxes and debt, and it argues that they are better approximations to empirical fiscal policies than those implied by the Ramsey model. The paper also establishes that optimal incentive compatible allocations converge to allocations such that the government's incentive compatibility constraint no longer binds. Generally, these limiting allocations are ones in which the government is maximally indebted. Their credibility and the interaction of incentive compatibility and credibility is briefly discussed. Copyright 2004, Wiley-Blackwell.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Oxford University Press in its journal The Review of Economic Studies.
Volume (Year): 71 (2004)
Issue (Month): 4 ()
Contact details of provider:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Sofia Bauducco & Francesco Caprioli, 2011.
"Optimal Fiscal Policy in a Small Open Economy with Limited Commitment,"
Working Papers Central Bank of Chile
644, Central Bank of Chile.
- Bauducco, Sofia & Caprioli, Francesco, 2014. "Optimal fiscal policy in a small open economy with limited commitment," Journal of International Economics, Elsevier, vol. 93(2), pages 302-315.
- Elizabeth Brainerd & Nidhiya Menon, 2013. "Religion and Health in Early Childhood: Evidence from the Indian Subcontinent," Working Papers 65, Brandeis University, Department of Economics and International Businesss School.
- Antje Berndt & Hanno Lustig & Sevin Yeltekin, .
"How does the U.S. government finance fiscal shocks?,"
GSIA Working Papers
2006-E70, Carnegie Mellon University, Tepper School of Business.
- Antje Berndt & Hanno Lustig & Sevin Yeltekin, 2010. "How Does the U.S. Government Finance Fiscal Shocks?," NBER Working Papers 16458, National Bureau of Economic Research, Inc.
- Halac, Marina & Yared, Pierre, 2013. "Fiscal Rules and Discretion under Persistent Shocks," The Warwick Economics Research Paper Series (TWERPS) 1014, University of Warwick, Department of Economics.
- Hall, George J. & Sargent, Thomas J., 2014.
"Fiscal discriminations in three wars,"
Journal of Monetary Economics,
Elsevier, vol. 61(C), pages 148-166.
- George J. Hall & Thomas J. Sargent, 2013. "Fiscal Discriminations in Three Wars," Working Papers 56, Brandeis University, Department of Economics and International Businesss School.
- George J. Hall & Thomas J. Sargent, . "Fiscal Discriminations in Three Wars," Economics Working Papers 01-03/2013, School of Business Administration, American University of Sharjah.
- George J. Hall & Thomas J. Sargent, 2013. "Fiscal Discriminations in Three Wars," NBER Working Papers 19008, National Bureau of Economic Research, Inc.
- Marina Halac & Pierre Yared, 2012. "Fiscal Rules and Discretion under Persistent Shocks," NBER Working Papers 18545, National Bureau of Economic Research, Inc.
- Alessandro Dovis, 2013. "Efficient Sovereign Default," 2013 Meeting Papers 293, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.