This paper clarifies the role of initial asset value constraints in Ramsey models of incomplete factor taxation. We show that the optimal long-run capital tax is zero in the long run if and only if there is no binding constraint on the initial capital tax rate. This finding contrasts with...

Modigliani and Miller's Proposition III asserts that if a firm's projects are all similar, they should all be discounted at the same marginal cost of capital (MCC), which is also the firm's average cost of capital (ACC). However, when a firm expands by accepting a new project, its weight in...

This article studies the equivalence between labor and consumption taxes in a stochastic context, where the government can undertake an active portfolio management strategy by investing in both risk-free and risky assets. Using a two-period model we show that such taxes let consumers make the...