This paper analyzes the theoretical and quantitative implications of optimal capital taxation in the neoclassical growth model with aggregate shocks and incomplete markets. The model features a representative-agent economy with proportional taxes on labor and capital. I first consider the case...

We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the discount factor of the politician is equal to or greater than...

Although technical knowledge generates spillover benefits, production of technical knowledge creates congestion externalities; thus, private R&D investment could be inefficient. A computable general equilibrium model is used to rank tax incentives by their effects on research effort and measure...

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...

The paper studies a fiscal policy instrument that can reduce fiscal distortions without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each citizen, whereby the citizen can choose to pay a fixed price in exchange...

This paper analyzes the dynamic politico-economic equilibrium of a model where repeated voting on social security and the evolution of household characteristics in general equilibrium are mutually affected over time. In particular, we incorporate within-cohort heterogeneity in a two-period...

We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces...

The key macroeconomic characteristics of the Flat Tax according to the Hall - Rabushka theory are outlined, with emphasis on the similarities and differences with the “Supply – Side Economics”. The main objective is to illustrate the application of this type of taxes in the Eastern...

This paper studies optimal taxation of entrepreneurial capital with private information and multiple assets. Entrepreneurial activity is subject to a dynamic moral hazard problem and entrepreneurs face idiosyncratic capital risk. We first characterize the optimal allocation subject to the...

In this paper I study the nature of optimal factor income taxation in a neoclassical growth model where search frictions on the labor marker generate unemployment. I show that the introduction of search frictions changes the Chamley-Judd result of zero capital taxation as follows: if the...