We extend the theory of optimal redistributive taxation to economies with an informal sector. In particular, in our model workers can supply labor simultaneously to the formal and the informal sectors, which we call moonlighting. The optimal tax formula contains two novel terms capturing...

The feedback loop between sovereign and financial sector insolvency has been identified as a key driver of the European debt crisis and has motivated an array of policy proposals. We revisit this "doom loop" focusing on governments' incentives to default. To this end, we present a simple...