This paper proposes a theory of commodity taxation in the presence of durable goods. Optimal commodity taxes depend on preference nonseparabilities between durable and nondurable consumption. In particular, the seminal Atkinson–Stigliz result fails and differential commodity taxes are optimal...

We study implications of habit formation for optimal taxation. First, we show that taxation problems with habit formation can be analyzed using dynamic programming techniques. Second, we derive optimal labor and savings wedges for habit formation preferences. We show that habit formation...

In this paper we allude to a novel role played by the non-linear income tax system in the presence of adverse selection in the labor market due to asymmetric information between workers and firms. We show that an appropriate choice of the tax schedule enables the government to affect the wage...

This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework where (voluntary) nonparticipation and (involuntary) unemployment are endogenous. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the...

Given that young children are under the control of their parents, if the government has an interest in either the welfare or the productivity of the former, it has no option but to act through the latter. Parents are, in the ordinary sense of the word, the government’s agents. They are agents...

We study a large economy model in which individuals have private information about their productive abilities and their preferences. Moreover, there is aggregate uncertainty so that the social benefits from taxation and public goods provision are a priori unknown. The analysis is based on a...