2007 Reports
Intertemporal distortions in the second best
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.
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More About This Work
- Academic Units
- Economics
- Publisher
- Department of Economics, Columbia University
- Series
- Department of Economics Discussion Papers, 0708-08
- Published Here
- March 28, 2011
Notes
November 2007