Optimal Mirrlees Taxation over the Business Cycle

Marcelo Veracierto

No WP 2026-19, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper analyzes the cyclical properties of the optimal labor wedges in a Mirrleesean business cycle model. Agents value consumption and leisure and receive persistent idiosyncratic shocks to their value of leisure, which are private information. The production structure is identical to a standard real business cycle model with aggregate productivity shocks. Solving the mechanism design problem for a version of this economy calibrated under logarithmic preferences, I find that the optimal labor wedges are approximately constant over the business cycle.

Keywords: Optimal taxation; business cycles; Private information; Social insurance (search for similar items in EconPapers)
JEL-codes: D39 D82 E32 H21 (search for similar items in EconPapers)
Pages: 30
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:103967

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DOI: 10.21033/wp-2026-19

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