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Intertemporal Distortions in the Second Best

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Author Info
Albanesi, Stefania
Armenter, Roc

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Abstract

We consider a very general class of public finance problems that encompasses the Ramsey model of optimal taxation as well as economies with limited commitment, private information, and political economy frictions, and allows for incomplete markets. 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6577.

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Date of creation: Nov 2007
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Handle: RePEc:cpr:ceprdp:6577

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Keywords: Intertemporal Distortions Optimal Dynamic Taxation

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Find related papers by JEL classification:
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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(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. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Ramsey Taxation," Levine's Bibliography 122247000000002192, UCLA Department of Economics. [Downloadable!]
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