We also explore the robustness of our model when second period valuations are correlated across individuals, and when each individual's first and second period types are correlated.

3.Finally we consider the case where the government's information is even more limited, as not only the linear taxes on trades but also the lump-sum tax cannot depend on the ex-post realization of the individual income shocks. In this case the second best cannot typically be attained, but we...

The explicit consideration of households also seeks to make a contribution to the emerging literature on dynamic optimal taxation with private information. One of the basic tenets of this approach is that normative analyses of government policies should consider constraints deriving from...