Optimal taxation without state-contingent debt, the Ramsey allocation for a given multiplier, and tax smoothing of consumption and taxes in complete and incomplete

Abstract

This paper illustrates optimal fiscal and monetary policies without state-contingent debt as in Aiyagari, Marcet, Sargent, and Seppälä (2002) and the issue of competitive equilibrium with distorting taxes, tax smoothing as in Barro (1979) but without state-contingent debt, and Ramsey problem without state-contingent debt. Numerical model od optimal taxation without state-contingent debt proves that the total resources available to the government (from taxes) are entirely used for consumption purposes, possibly reflecting a scenario where government spending equals tax revenue, and there is no debt accumulation. Optimal taxation without state-contingent debt shows that the contact between tax rate and debt is of 0th-order: The curves touch at a point but don't necessarily have the same tangent or curvature at that point. The tax rate curve is convex (minimum),debt curve is concave (maximum).