The event below has been cancelled.

The Department of Economics Recruiting Seminars presents

"Optimal Taxation in a Limited Commitment Economy"
with Yena Park, Graduate Student, University of Pennsylvania (Ph.D. expected May 2014)

January 31, 2014
11:00 a.m.-12:30 p.m.
Social Science Plaza B, Room 3218

This talk covers optimal Ramsey taxation when risk sharing in private insurance markets is imperfect due to limited enforcement. In a limited commitment economy, there are externalities associated with capital and labor because individuals do not take into account that their labor and saving decisions affect aggregate labor and capital supply and wages, and thus the value of autarky. Therefore, a Ramsey government has an additional goal, which is to internalize these externalities of labor and capital to improve risk sharing, in addition to its usual goal - minimizing distortions in financing government expenditures. These two goals drive optimal capital and labor taxes in opposite directions. It is shown that the steady-state optimal capital income taxes are levied only to remove the negative externality of the capital, whereas optimal labor income taxes are set to meet the budgetary needs of the government in the long run, despite the presence of positive externalities of labor.

For further information, please contact Jennifer dos Santos, dayj@uci.edu or 949-824-5788.