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Intertemporal distortions in the second best

Stefania Albanesi; Roc Armenter

Title:
Intertemporal distortions in the second best
Author(s):
Albanesi, Stefania
Armenter, Roc
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0708-08
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
We consider a very general class of public finance problems that encompasses Ramsey models of optimal taxation as well as economies with limited commitment, private information, and political economy frictions. We identify a sufficient condition to rule out permanent intertemporal distortions at the optimum: If there exists an admissible allocation that converges to the first best steady state, then all intertemporal distortions are temporary in the second best. We analyze a series of applications to illustrate the significance of this result.
Subject(s):
Economics
Finance
Item views:
230
Metadata:
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