In the paper we show – using standard approaches, general equilibrium modeling and the assumption of complete rationality – that macroeconomic environment is endogenous and is indeterminate. Specifically, it is argued – without resorting to sunspot type arguments – that microeconomic...

We focus exclusively on preferences characterized by the absence of income effects. We argue that the approach of Mirrlees to optimal taxation is faulty as it fails to identify the true optimum of the optimal taxation problem. Furthermore, we argue that zero optimal marginal tax rates are...

We revisit the issue of optimality of public debt in a general equilibrium framework. Specifically, we endow the government with the power to set the interest rate on bonds it issues and by doing so we move beyond the set of competitive equilibria and extend the domain of the standard Ramsey...

In this paper, we describe an elementary, fully implementable, and revenue neutral randomizing mechanism that leads to a Pareto improvement over allocations induced by labor income tax functions. We illustrate, by providing a theoretical example, that our mechanism can be applied to optimal tax...

We prove in the context of optimal taxation that the utility possibility frontier can be reached with step functions. This opens a possibility of existence of legitimate - with suitably chosen marginal social welfare weights - optimal taxation problems that admit solutions of a different form...

In this paper we present solutions to the optimal taxation problem in Poland in the case of high income earners. We characterize the actual data provided by the Polish Tax Authority and show that it is thick-tailed in the upper end of the distribution. Specifically, we show that income...

In a general equilibrium model with fully rational agents and built in micro-level uncertainty we show that debt financed government spending on consumption can be welfare improving at all horizons despite the fact that it inhibits the process of physical capital formation. In addition, we show...

This paper solves an often neglected problem of efficient taxation where the policymaker is interested in minimizing the dead weight burden imposed on the society by labor income taxes. Specifically, it argues that the efficient tax function assumes the form of a step function. Furthermore, it...

Human beliefs, while always remaining in equilibrium, serve as a an equilibrium selector and determine the degree of aggregate volatility. Fully rational and risk averse economic agents expect macro-level dynamics to be characterized by a specific degree of volatility. Given this expectation the...

We show using elementary arguments that the utilitarian approach to optimal taxation leads to results that are very sensitive to the underlying formulation of the problem. In particular, we argue that there are legitimate optimal taxation problems that admit solutions of a different form than...