Velasco, Andrés; Benhabib, Jess; Rustichini, Aldo - In: Review of Economic Design 6 (2001) 3, pp. 371-396
We consider a representative agent, infinite-horizon economy where production requires private and public capital. The supply of public capital is financed through distortionary taxation. The optimal (second best) tax policy of a benevolent government is time inconsistent. We therefore introduce...