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Optimal Ramsey taxation with hidden actions

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  • Darong Dai

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.

Suggested Citation

  • Darong Dai, 2015. "Optimal Ramsey taxation with hidden actions," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(6), pages 1112-1141, November.
    • Handle: RePEc:eme:jespps:v:42:y:2015:i:6:p:1112-1141
    DOI: 10.1108/JES-10-2014-0178
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