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On the optimality of Ramsey taxes in Mirless economies

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  • Borys Grochulski

Abstract

In this paper, we show that a simple, linear capital tax? the kind used in the Ramsey analysis? can be optimal in a Mirrlees economy with private information. We extend the Mirrlees approach to optimal taxation by studying taxes side-by-side with another institution, rather than in isolation. We consider an implementation in which agents use unsecured credit and personal bankruptcy to obtain insurance. Taxes are levied to fund government expenditures. An optimal tax system consists of lump-sum taxes and a simple Ramsey tax on wealth. In Mirrlees private information environments, optimal capital taxes do not have to be complicated.

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  • Borys Grochulski, 2010. "On the optimality of Ramsey taxes in Mirless economies," Working Paper 10-14, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:10-14
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    References listed on IDEAS

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    1. Narayana R. Kocherlakota, 2005. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Econometrica, Econometric Society, vol. 73(5), pages 1587-1621, September.
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    6. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
    7. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 569-587.
    8. Narayana R. Kocherlakota, 2010. "The New Dynamic Public Finance," Economics Books, Princeton University Press, edition 1, number 9222.
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    10. Borys Grochulski, 2010. "Optimal Personal Bankruptcy Design under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 350-378, April.
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    Keywords

    Financial markets; Financial institutions; Bankruptcy;
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