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Optimal taxation and constrained inefficiency in an infinite-horizon economy with incomplete markets

Gottardi, Piero; Kajii, Atsushi; Nakajima, Tomoyuki - Department of Economics, European University Institute - 2011

We study the dynamic Ramsey problem of finding optimal public debt and linear taxes on capital and labor income within a tractable infinite horizon model with incomplete markets. With zero public expenditure and debt, it is optimal to tax the risky labor income and subsidize capital, while a...

Persistent link: https://www.econbiz.de/10009018177

Capital structure, investment, and fire sales

Gale, Douglas; Gottardi, Piero - London School of Economics (LSE) - 2014

, trading off the tax advantages of debt against the risk of costly default. The costs of bankruptcy are endogenously determined … corporate income tax rate is positive, firms have a unique optimal capital structure. In equilibrium firms default with positive … constrained inefficient. In particular there is too little debt and too little default. …

Persistent link: https://www.econbiz.de/10011170093

Local Interactions as a Decentralized Mechanism Coordinating Equilibrium Expectations

Hohnisch, Martin - 2005

In the context of standard two-period pure-exchange economies with sequential trade, this paper proposes a decentralized coordination mechanism for equilibriumexpectations, facilitated by local interactions between agents. Interactions are modelled stochastically by specifying a family of...

Persistent link: https://www.econbiz.de/10010263152

Welfare-improving debt constraints

Páscoa, Mário R.; Petrassi, Myrian; Torres-Martínez, … - 2007

We show that in economies without liquidity frictions, but with incomplete financial markets, when agents are infinitely lived and uniformly impatient, money can still be essential (that is, have a positive price in equilibrium) if and only if each agent has binding debt constraints at some node...

Persistent link: https://www.econbiz.de/10011807365

Long-lived collateralized assets and bubbles

Araujo, Aloisio; Páscoa, Mário R.; Torres-Martínez, … - 2007

When infinite lived agents trade long-lived assets secured by durable goods, equilibrium exists without any uniform impatience requirements or additional debt constraints. Asset pricing bubbles are absent when the new endowments of durable goods are uniformly bounded away from zero. Otherwise,...

Persistent link: https://www.econbiz.de/10011807366

With additional enforcement mechanisms, does Collateral avoid Ponzi Schemes ?

Revil, Thiago; Torres-Martínez, Juan Pablo - 2008

repossession is the only mechanism enforcing borrowers not to entirely default on their promises. In these economies, we add … default enforcement mechanisms that are effective, i.e. induce payments besides the value of collateral guarantees. We prove …

Persistent link: https://www.econbiz.de/10011807369

Money and prices under uncertainty

Nakajima, Tomoyuki; Polemarchakis, Herakles - 2001

Monetary and fiscal policy do not determine the stochastic path of prices: in the absence of financial policy, there remains indeterminacy indexed by an arbitrary probability measure over the set of states of the world. With an interest rate policy, and only if the asset market is complete,...

Persistent link: https://www.econbiz.de/10010318888

Non-existence of recursive equilibria on compact state spaces when markets are incomplete

Krebs, Tom - 2002

This paper analyzes one-good exchange economies with two infinitely-lived agents and incomplete markets. It is shown that there are no recursive (Markov) equilibria for which borrowing (debt) constraints never bind if the state space of exogenous and endogenous variables is a compact subset of...

Persistent link: https://www.econbiz.de/10010318900

Markets and contracts

Bisin, A - 2001

; this is in common with economies with default, incomplete contracts or price rigidities. Competitive, anonymous markets are …

Persistent link: https://www.econbiz.de/10010318960

Recursive equilibrium in endogenous growth models with incomplete markets

Krebs, Tom - 2002

This paper analyzes the existence of recursive equilibria in a class of convex growth models with incomplete markets. Households have identical CRRA-preferences, production displays constant returns to scale with respect to physical and human capital, and all markets are competitive. There are...

Persistent link: https://www.econbiz.de/10010318985