Allocation and Taxation in Uncommitted Societies

We analyze the properties of credible equilibria in dynamic settings with privately informed agents, capital accumulation and a lack of societal commitment. We show that a lack of commitment tilts the social tradeoff between equality and incentives towards the former and has ambiguous implications for capital accumulation. We isolate forces that promote and retard capital accumulation in these settings, derive the pattern of intertemporal wedges that characterize optimal credible allocations and show that these allocations solve the problem of a committed pseudo-planner with perturbed preferences and production possibilities. We obtain implementations of credible societal optima that feature progressive taxes on capital. Finally, we derive asset pricing implications of no commitment-private information models.