Optimal taxation in the presence of bailouts
The termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs. A government in the tradition of Ramsey (1927) may be inclined to provide transfers to the firm so as to prevent its liquidation and the associated deadweight costs. It is shown that the optimal taxation policy to finance such transfers exhibits procyclicality and history dependence, even in a complete market. These results are in contrast with pre-existing literature on optimal fiscal policy, and are driven by the endogeneity of the transfer payments that are required to salvage the financial firm.
Year of publication: |
2010
|
---|---|
Authors: | Panageas, Stavros |
Published in: |
Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 57.2010, 1, p. 101-116
|
Publisher: |
Elsevier |
Keywords: | Optimal taxation Guarantees Bailouts Continuous time optimization methods |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Contingent reserves management: An applied framework
Caballero, Ricardo, (2005)
-
Three essays in finance and macroeconomics
Panageas, Stavros, (2005)
-
Garleanu, Nicolae, (2008)
- More ...