In a second-best optimal growth setup with only factor taxes, it is in general optimal to fully replace capital by labor income taxation in the long run. We revisit this important issue by developing a human capital-based endogenous growth model with frictional labor search, allowing each firm...

This paper develops a dynamic general-equilibrium model with production to examine the inter-relationships between the real and the financial sectors with and without credit market imperfections. Due to the moral hazard problem, borrowers may take the money and run while lenders may ration...