We reexamine the properties of optimal fiscal policy and their implications for implementable capital accumulation. The setup is a standard endogenous growth model with public production services, augmented by elastic labor supply. We show that, when a benevolent government chooses a distorting...

Previous literature demonstrates that in a computational life cycle model the optimal tax on capital is positive and large. Given the computational complexities of these overlapping generations models it is helpful to determine the relative importance of the economic factors driving this result....

This paper evaluates the trade-off between growth and welfare maximization from two perspectives. Firstly, it synthesizes and ex- tends endogenous growth models with public finance to compare growth and welfare maximizing tax rates. Secondly, it examines the distinct model outcomes in terms of...

This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main findings are: (i) it is optimal for a benevolent government, which cares equally about its...

We study the structure of optimal wedges and capital taxes in a Mirrlees economy with endogenous skills. Human capital is a private state variable that drives the skill process of each individual. Building on the findings of the labor literature, we assume that human capital investment is a)...

We study the structure of optimal wealth and labor income taxes in a Mirrlees economy in which the productivity of labor (i.e., skill) is private, stochastic, and endogenous. Individual agents' skills are determined by their level of human capital. Human capital is not publicly observable and...

Many authors have argued that capital income risk is a major determinant of wealth inequality. Inspired by this, I develop a model of optimal taxation of capital income in which wealth and income inequality is a result of capital income shocks together with frictions in financial markets. I use...

We use a very standard life-cycle growth model, in which individuals have a labor-leisure choice in each period of their lives, to prove that an optimizing government will almost always find it optimal to tax or subsidize interest income. The intuition for our result is straightforward. In a...

We study fiscal devaluation in a small-open economy with labor market search frictions. Our analysis shows the key role of both dimensions in shaping the optimal tax scheme. By reducing labor market distortions, the tax reform is welfare-improving. Yet, as it makes imports more expensive, fiscal...

This paper considers the impact on optimal tax policy of including endogenously determined retirement in a life cycle model. Allowing individuals to determine when they retire causes the optimal tax on capital to increase by 75% because of two implicit changes in the aggregate labor supply...