Markets Versus Governments : Political Economy of Mechanisms ∗

  title={Markets Versus Governments : Political Economy of Mechanisms ∗},
  author={Narayana Kocherlakota},
We study the optimal Mirrlees taxation problem in a dynamic economy with idiosyncratic (productivity or preference) shocks. In contrast to the standard approach, which implicitly assumes that the mechanism is operated by a benevolent planner with full commitment power, we assume that any centralized mechanism can only be operated by a self-interested ruler/government without commitment power, who can therefore misuse the resources and the information it collects. An important result of our… CONTINUE READING
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