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Ramsey Asset Taxation under Asymmetric Information

  • University of Venice
  • Nicola Pavoni
  • Piero Gottardi

3.Finally we consider the case where the government's information is even more limited, as not only the linear taxes on trades but also the lump-sum tax cannot depend on the ex-post realization of the individual income shocks. In this case the second best cannot typically be attained, but we show that still some partial insurance and some effort level (higher than the minimum) can be sustained, unlike what happens at the competitive equilibrium with no taxes or with only taxes and no trades in he market. Thus the interaction between markets and government intervention proves to be beneficial and enhances the efficiency properties of allocations. Also, at the optimum there may be nonzero trade in assets and in that case the expected tax rate is positive.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 309.

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Date of creation: 2008
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Handle: RePEc:red:sed008:309
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