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Optimal Mirrlees Taxation over the Business Cycle

Author

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  • Marcelo Veracierto

Abstract

This paper analyzes the cyclical properties of the optimal labor wedges in a Mirrleesean business cycle model. Agents value consumption and leisure and receive persistent idiosyncratic shocks to their value of leisure, which are private information. The production structure is identical to a standard real business cycle model with aggregate productivity shocks. Solving the mechanism design problem for a version of this economy calibrated under logarithmic preferences, I find that the optimal labor wedges are approximately constant over the business cycle.

Suggested Citation

  • Marcelo Veracierto, 2026. "Optimal Mirrlees Taxation over the Business Cycle," Working Paper Series WP 2026-19, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:103967
    DOI: 10.21033/wp-2026-19
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    Keywords

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    JEL classification:

    • D39 - Microeconomics - - Distribution - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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