Do taxspots matter? A study of optimal tax uncertainty

Alessandro Citanna (ac6609@nyu.edu) and Mich Tvede (m.tvede@sheffield.ac.uk)
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Alessandro Citanna: New York University Abu Dhabi, UAE
Mich Tvede: School of Economics, University of Sheffield, Sheffield S1 4DT, UK

No 2024006, Working Papers from The University of Sheffield, Department of Economics

Abstract: Should the government run an uncertain fiscal policy to finance its liabilities? We call the resulting uncertainty taxspots, and study conditions that make taxspots optimal, and recurrent, in standard Ramsey problems. We show that prudence and market incompleteness play a role in sustaining taxspots, and that equal-treatment randomizations can be decentralized via taxspots even in the absence of financial markets.

Keywords: Ramsey taxation; sunspots; lottery equilibrium (search for similar items in EconPapers)
JEL-codes: D51 D52 D84 E62 H21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2024-07
New Economics Papers: this item is included in nep-pbe
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