Working papers:

Intertemporal distortions in the second best

Title:: Intertemporal distortions in the second best
Author(s):: Albanesi, Stefania
Armenter, Roc
Date:: 2007
Type:: Working papers
Handle:: http://hdl.handle.net/10022/AC:P:15438
Series:: Department of Economics Discussion Papers
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