In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk. This is unlikely to be the case in OLG economies, where, the equilibrium interest rate may differ from the policy-maker’s rate of time preference such that it may be optimal to reduce debt today to reduce distortionary taxation ...

Should the assessment of government policies, such as the provision of public goods and the control of externalities, deviate from first-best principles to account for distributive effects and for the distortionary cost of labor income taxation? For example, is the optimal extent of public goods provision smaller than indicated by the Samuelson rule because finance is distortionary? Or should e...

Optimal Income Taxation of Married Couples: An Empirical Analysis of Joint and Individual Taxation In this paper we develop a discrete model of optimal taxation of married couples and empirically discuss the optimality of income taxation for this group. To this end, we derive the social welfare function which guarantees that joint taxation of married couples is optimal. We will contrast this we...

This paper presents a New Economic Geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions’ sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core...

We study the interaction between monetary and fiscal policies in a Ramsey-Sidrauski model augmented with environmental capital. Equilibrium solutions are studied through “Green Golden Rule”. Despite non-separability of money utility intertemporally non-separable preferences, is environmentally neutral. Policy impacts environment via marginal rate transformation rather than substitution consumpt...

We utilize a simple overlapping generations model with a balanced budget rule to study the effect of distortionary taxation on cycles and local stability of equilibria. We show that under proportional taxation there is a critical tax rate above which cycles will vanish, while in the case of linearly progressive taxation there is a critical level of exemption below which cycles will vanish as we...

Optimal Taxation with Capital Accumulation and Wage Bargaining This study examines optimal taxation in a unionized economy in which households save capital. The main findings are as follows. Judd’s (1985) and Chamley’s (1986) classical results of zero taxation on capital income holds. This is true independently of workers’ savings behaviour or the capitalists’ weight in the social welfare funct...

This paper derives a version of the Samuelson rule, which takes not only the marginal costs of public funds into account but also the desirability of preference revelation. Under a linear income tax more able individuals suffer from a larger utility loss if taxes are raised to cover the cost of public good provision. This implies that these individuals are tempted to understate their valuation ...

Redistributive Taxation and Personal Bankruptcy in US States Both personal bankruptcy and redistributive taxes can insure households’ consumption risk and both vary considerably across US states. We derive sufficient conditions under which more redistributive taxation makes bankruptcy exemptions less attractive both for the intratemporal insurance and for inter-temporal consumption smoothing. E...