Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/49512
Authors: 
Gottardi, Piero
Kajii, Atsushi
Nakajima, Tomoyuki
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3560
Abstract: 
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 positive amount of public debt is welfare improving. A steady state optimality condition is derived which implies that the tax on capital is positive, when savings are sufficiently inelastic to returns. A calibration of our model to the US economy indicates positive optimal taxes and a small but positive optimal debt level.
Subjects: 
incomplete markets
Ramsey equilibrium
optimal taxation
optimal public debt
constrained inefficiency
JEL: 
D52
D60
D90
E20
E62
H21
O40
Document Type: 
Working Paper

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