{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

handoutdyntax - Dynamic Optimal Taxation Follows...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Dynamic Optimal Taxation Follows Kocherlakota, N. (2005) “Advances in Dynamic Optimal Taxa- tion” http:/ /www.econ.umn.edu/˜nkocher/london3.pdf 1 Environment T periods. E ff ective labor units given by n t = θ t c t where θ t is skill and c t is e ff ort θ t is an iid shock across agents. At the beginning of the period θ t is revealed. Let μ denote the prob distn over history θ t . ( θ t , c t ) are private info but n t is observable. CRS technology F ( K t , R θ t n t ( θ t ) ) with initial capital given by K 0 . Preferences: E " T X t =1 β t 1 { u ( c t ) v ( c t ) } # Govt purchases G t 2 Equilibrium Defn. An allocation is resource feasible if Z θ t c t ( θ t ) + K t +1 + G t F ( K t , Z θ t n t ( θ t ) ) + (1 δ ) K t Defn. An allocation is incentive compatible if T X t =1 β t 1 Z θ t © u ( c t ( σ T T )) v ( n t ( σ TT ) t ) ª T X t =1 β t 1 Z θ t { u ( c t ( σ )) v ( n t ( σ ) t ) } where σ TT denotes the truthtelling reporting strategy and σ denotes any other report. Defn. An allocation which is incentive compatible and resource feasible is called incentive feasible .
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}