Markets as beneficial constraints on the government

Alberto Bisin, Adriano A. Rampini

    Research output: Contribution to journalArticle

    Abstract

    We study the role of anonymous markets in which trades cannot be monitored by the government. We adopt a Mirrlees approach to analyze economies in which agents have private information and a benevolent government controls optimal redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government, it also limits the scope of inefficient redistributive policies when the government lacks commitment. Indeed, the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital taxation and the history-dependence of income taxation, can have positive welfare effects in this case.

    Original languageEnglish (US)
    Pages (from-to)601-629
    Number of pages29
    JournalJournal of Public Economics
    Volume90
    Issue number4-5
    DOIs
    StatePublished - May 2006

    Keywords

    • Markets
    • Optimal policy
    • Optimal taxation
    • Time consistency

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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