Seminar by Amol (Ashoka University)

Centre for Development Economics
Department of Economics
Delhi School of Economics

ANNOUNCE A SEMINAR

by

Venue:  Amex

Abstract:-
 This paper studies optimal fiscal policy in an economy with heterogeneous returns to capital and exogenously incomplete markets. Two commonly used models of incomplete markets are considered. In the first model, entrepreneurs differ in the known returns of their investment and face collateral constraints. In the second model, the returns of entrepreneurs are subject to ex-post investment risk. In both models, optimal fiscal policy achieves the complete markets Ramsey allocation with a rich tax system. Optimal policy requires a large amount of public debt that satisfies the demand for safe and liquid assets by entrepreneurs. The government funds large interest payments by levying large consumption taxes and subsidizing labor income.

All are cordially invited.

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