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Federal Reserve Bank of Richmond
Working Paper
On the optimality of Ramsey taxes in Mirless economies
Borys Grochulski
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.


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Borys Grochulski, On the optimality of Ramsey taxes in Mirless economies, Federal Reserve Bank of Richmond, Working Paper 10-14, 2010.
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Keywords: Financial markets ; Financial institutions ; Bankruptcy
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