We study the effectson tax enforcement and tax policy of unintentional complianceerrors by taxpayers and administrative errors by tax auditors.The government can impose both penalties for misreporting andrewards for honest reporting. Maximal sanctions will not be appliedbecause errors are...

This paper investigates properties of the second best allocation in a fiscal federal system in which both federal tax and intergovernmental grants are involved and the taxation is distortionary. Also, optimal federal grants and tax policies in a decentralized fiscal system are examined. Our...

This paper studies the design of an optimal pension scheme in an OLG and open economy model. The pension scheme provides a flat rate benefit and is based on the PAYG principle. It thus combines inter- and intra-generational redistribution. In this setting a number of symmetric economies are...

We examine how three sources of asymmetric information affect the supply of entrepreneurs and unemployment. In the first case, banks cannot observe entrepreneurs' risk of failure so ration credit. This increases the number of entrepreneurs and the level of unemployment. In the second case, firms...

This paper summarizes James Mirrlees' key contribution to the theory of tax policy. It argues that the Mirrlees approach of viewing government as being constrained by imperfect information has changed profoundly how we look at the normative public policy. In this view, asymmetric information...

A two-region economy consists of a given but different number of immobile workers in each region, and a given number of mobile firms. Firms create jobs where they locate, but there is frictional unemployment. Two sorts of agglomeration effects arise: those from economies of scale in matching,...