Anonymous Markets and Optimal Policy∗

Is there a role for anonymous markets in which trades cannot be monitored by the government? We study an economy in which agents have private information and a benevolent government controls redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government in general, it also limits the scope of inefficient redistributive policies when the government lacks commitment. We adopt a Mirrlees approach to study optimal fiscal policy in various simple dynamic economies with private information. We characterize optimal allocations and tax implementation schemes when the government has commitment and when it lacks commitment. We show that the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital tax schedules and on the history-dependence of income tax schedules, can have positive welfare effects when the government lacks commitment. JEL Classification: E61; H21; D82.