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Heterogeneous Beliefs and Optimal Taxation

Author

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  • Anderson Schneider

    (University of Minnesota and Federal Reserve Bank of Minneapolis.)

  • Facundo Piguillem

    (University of Minnesota and Federal Reserve Bank of Minneapolis.)

Abstract

signal about the fundamental. The rst characteristic implies that the best policy (tax on investment) with commitment is state contingent. The second and third characteristics make the information incomplete. In particular, agents have di erent information sets, and therefore di erent beliefs, about the true state of the economy. As a result, independently of the accuracy of the signal, incomplete information reduces the set of equilibrium payo s. First, we show that any policy that depends solely on the fundamental cannot be an equilibrium. Second, the best equilibrium policy is independent of the fundamental. Finally, for any discount factor strictly smaller than one and for any size of the noise, the best equilibrium is inecient.

Suggested Citation

  • Anderson Schneider & Facundo Piguillem, 2009. "Heterogeneous Beliefs and Optimal Taxation," 2009 Meeting Papers 826, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:826
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    References listed on IDEAS

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    1. Susan Athey & Andrew Atkeson & Patrick J. Kehoe, 2005. "The Optimal Degree of Discretion in Monetary Policy," Econometrica, Econometric Society, vol. 73(5), pages 1431-1475, September.
    2. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 317-349.
    3. Bergin, James & Bernhardt, Dan, 1992. "Anonymous sequential games with aggregate uncertainty," Journal of Mathematical Economics, Elsevier, vol. 21(6), pages 543-562.
    4. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    Cited by:

    1. Yusuke Kinai, 2011. "Optimal Degree of Commitment in a Tax Policy," Discussion Papers in Economics and Business 11-11, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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