Optimal tax and debt policy with endogenously imperfect creditworthiness

  title={Optimal tax and debt policy with endogenously imperfect creditworthiness},
  author={Joshua Aizenman and Michael Gavin and Ricardo Hausmann},
This paper studies the patterns of optimal tax rates and borrowing in a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system, the relative bargaining power of creditors, and the outstanding debt. Country risk modifies considerably the pattern of taxes and borrowing in recessions. The tax rate exhibits strong counter-cyclical patterns in economies operating close to the credit ceiling, whereas… CONTINUE READING

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