We study Ramsey optimal fiscal policy under incomplete markets in the case where the government issues only long bonds of maturity N 1. We find that many features of optimal policy are sensitive to the introduction of long bonds, in particular tax variability and the long-run behaviour of debt....

We study optimal policy when the planner has partial information in a general setup where observed signals are endogenous to policy. In this context, signal extraction and policy have to be determined jointly. We derive a general non-standard first order condition of optimality from first...

In Lucas and Stokey's (1983) economy, tax rates inherit the serial correlation structure of government expenditures, belying Barro's (1979) result that taxes should be a random walk for any stochastic process of government expenditures. To recover a version of Barro's 'random walk' tax-smoothing...