This paper clarifies the role of initial asset value constraints in Ramsey models of incomplete factor taxation. We show that the optimal long-run capital tax is zero in the long run if and only if there is no binding constraint on the initial capital tax rate. This finding contrasts with...

We study optimal fiscal and monetary policy in an environment where explicit frictions give rise to valued money, making money essential in the sense that it expands the set of feasible trades. Our main results are in stark contrast to the prescriptions of earlier flexible-price Ramsey models....

Heterogeneity between unemployed and employed individuals matters for optimal fiscal policy. This paper considers the consequences of welfare heterogeneity between these two groups for the determination of optimal capital and labor income taxes in a model with matching frictions in the labor...