We show a standard model where the optimal tax reform is to cut labor taxes and leave capital taxes very high in the short and medium run. Only in the very long run would capital taxes be zero. Our model is a version of Chamleys, with heterogeneous agents, without lump sum transfers, an upper...

The booms and busts in U.S. stock prices over the post-war period can to a large extent be explained by fluctuations in investors' subjective capital gains expectations. Survey measures of these expectations display excessive optimism at market peaks and excessive pessimism at market throughs....

Standard practice in Bayesian VARs is to formulate priors on the autoregres- sive parameters, but economists and policy makers actually have priors about the behavior of observable variables. We show how this kind of prior can be used in a VAR under strict probability theory principles. We state...

We present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are 'internally rational', i.e., maximize discounted expected utility under uncertainty given dynamically consistent subjective...

Two results characterize previous studies of optimal capital income taxation: (i) In order to avoid distorting capital accumulation incentives the ex ante capital tax rate should be set to zero in the long run and ii) by varying the ex post capital tax rate governments may be able to insulate...

We study the issue of income convergence across countries and regions with a Bayesian estimator which allows us to use information in an efficient and flexible way. We argue that the very slow convergence rates to a common level of per-capita income found, e.g., by Barro and Xavier...