Bassetto, Marco;
Cui, Wei;
(2023)
A Ramsey Theory of Financial Distortions.
Journal of Political Economy
, 132
(5)
10.1086/729446.
(In press).
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Abstract
The return on government debt is lower than that of asset with similar payoffs. We study optimal debt management and taxation when the government cannot directly redistribute towards the agents in need of liquidity but otherwise has access to a complete set of linear tax instruments. Optimal government debt provision calls for gradually closing the wedge between the returns as much as possible, but tax policy may work as a countervailing force: as long as financial frictions bind, it can be optimal to tax capital even if this magnifies the discrepancy in returns.
| Type: | Article |
|---|---|
| Title: | A Ramsey Theory of Financial Distortions |
| DOI: | 10.1086/729446 |
| Publisher version: | https://doi.org/10.1086/729446 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Financing Constraints; Asset Liquidity; Capital Tax; Low Interest Rates; Optimal Level of Government Debt |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10177896 |
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