The central result of this paper is that when moral hazard ispresent,competitive equilibrium is almost always (constrained) inefficient. Moral hazard causes shadow prices to deviate from market prices. To remedy this market failure, the government could introduce differential commodity taxation....

A common objection to "sin taxes"--corrective taxes on goods that are thought to be overconsumed, such as cigarettes, alcohol, and sugary drinks--is that they often fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives...

The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the...

We characterize and demonstrate a solution method for an optimal commodity (sales) tax problem consisting of multiple goods, heterogeneous agents, and a nonconvex policy maker optimization problem. Our approach allows for more dimensions of heterogeneity than has been previously possible,...

We examine the interplay between market structure and the form that commodity taxation should take in a world in which firms produce differentiated products and so are able to exert some degree of market power. Our analysis takes explicit account of two important recent developments that carry...

This paper revisits the Atkinson-Stiglitz result on uselessness of commodity taxation in the presence of optimal non-linear income taxation in a more general setup, namely when tastes are heterogeneous. This general analysis displays the key economic assumptions under which the Atkinson-Stiglitz...

The macroeconomic analysis of fiscal policy is usually based on one of two canonical models--the Barro-Ramsey model of infinitely-lived families or the Diamond-Samuelson model of overlapping generations. This paper argues that neither model is satisfactory and suggests an alternative. In the...

This paper employs a synthetic cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different education and occupation groups. Using these profiles, we estimate a structural model of...

Empirical research on the permanent income hypothesis (PIH) has found that consumption growth is excessively sensitive to predictable changes in income. This finding is interpreted as strong evidence against the PIH. We propose an explanation for apparent excess sensitivity that is based on a...