Optimal Ramsey taxation with hidden actions
Abstract
Purpose
The purpose of this paper is to study the problem of optimal Ramsey taxation in a finite-planning-horizon, representative-agent endogenous growth model including government expenditures as a productive input in capital formation and also with hidden actions.
Design/methodology/approach
Technically, Malliavin calculus and forward integrals are naturally introduced into the macroeconomic theory when economic agents are faced with different information structures arising from a non-Markovian environment.
Findings
The major result shows that the well-known Judd-Chamley Theorem holds almost surely if the depreciation rate is strictly positive, otherwise Judd-Chamley Theorem only holds for a knife-edge case or on a Lebesgue measure-zero set when the physical capital is completely sustainable.
Originality/value
The author believes that the approach developed as well as the major result established is new and relevant.
Keywords
Acknowledgements
JEL Classification — D80, E62, H21
The author is very grateful for the helpful comments, which have significantly improved the quality of the current paper, from the anonymous referee. Certainly, any remaining errors are my own responsibility.
Citation
Dai, D. (2015), "Optimal Ramsey taxation with hidden actions", Journal of Economic Studies, Vol. 42 No. 6, pp. 1112-1141. https://doi.org/10.1108/JES-10-2014-0178
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited