On the optimality of Ramsey taxes in Mirrlees economies

Borys Grochulski

No 883, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we show that a simple, linear capital tax---the kind used in the Ramsey analysis---can be optimal in a Mirrlees economy with private information. We extend the Mirrlees approach to optimal taxation by studying taxes side-by-side with another institution, rather than in isolation. We consider an implementation in which agents use unsecured credit and personal bankruptcy to obtain insurance. Taxes are levied to fund government expenditures. An optimal tax system consists of lump-sum taxes and a simple Ramsey tax on wealth. In Mirrlees private information environments, optimal capital taxes do not have to be complicated.

Date: 2011
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Working Paper: On the optimality of Ramsey taxes in Mirrlees economies (2010)
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