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Intertemporal Distortions in the Second Best

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Author Info
Stefania Albanesi () (Department of Economics, Columbia University)
Roc Armenter () (Federal Reserve Bank of New York)

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Abstract

We consider a very general class of public finance problems that encompasses Ramsey models of optimal taxation as well as economies with limited commitment, private information, and political economy frictions. We identify a sufficient condition to rule out permanent intertemporal distortions at the optimum: If there exists an admissible allocation that converges to the first best steady state, then all intertemporal distortions are temporary in the second best. We analyze a series of applications to illustrate the significance of this result.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0708-08.

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Length: 38 pages
Date of creation: 2007
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Handle: RePEc:clu:wpaper:0708-08

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  7. Correia, Isabel H., 1996. "Should capital income be taxed in the steady state?," Journal of Public Economics, Elsevier, vol. 60(1), pages 147-151, April. [Downloadable!] (restricted)
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  29. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2007. "Political Economy of Mechanisms," Levine's Bibliography 321307000000000886, UCLA Department of Economics. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Junsang Lee & Yili Chien, 2008. "Why Tax Capital?," ANUCBE School of Economics Working Papers 2008-497, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
    Other versions:
  2. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Ramsey Taxation," Levine's Bibliography 122247000000002192, UCLA Department of Economics. [Downloadable!]
    Other versions:
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