Dynamic Taxation, Private Information and Money
نویسنده
چکیده
The objective of this paper is to study optimal scal and monetary policy in a dynamic Mirrlees model where the frictions giving rise to money as a medium of exchange are explicitly modeled. The framework is a three period OLG model where agents are born every other period. The young and old trade in perfectly competitive centralized markets. In middle age, agents receive preference shocks and trade amongst themselves in an anonymous search market. Money is essential in this market. Since preference shocks are private information, in a record-keeping economy without money, the planners allocation trades o¤ e¢ cient risk sharing against production e¢ ciency in the search market and average consumption when old. For a government to replicate this outcome in a monetary economy without record-keeping, distortionary taxation of money balances is needed. I would like to thank Aleks Berentsen, Gabriele Camera, Tom Gresik, Randy Wright and the participants of the Penn Search and Matching Conference for very helpful comments on an early draft of this paper.
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