Expectations formation and optimal taxation
Title: Expectations formation and optimal taxation
Author: ROJAS, Luis E.
Citation: Florence : European University Institute, 2016
Series/Number: EUI PhD theses; Department of Economics
This thesis is composed of three essays that propose macroeconomic theories to answer empirical questions and guide policy design. The focus is on expectations formation, learning and optimal taxation. In the first chapter I address the empirical finding that sovereign default history is a predictor of risk spreads even after controlling for pricing fundamentals. I show that this fact can be reconciled with a model of creditors’ learning about the default probability of a sovereign. Furthermore, I show that if creditors learn about a group of countries, then clusters of default emerge as a side effect of the beliefs formation process. The second chapter documents that investment recovers sluggishly after recessions and that consumption tends to lead the recoveries. I propose a model to show that during recessions investors might be excessively pessimistic about consumer demand and delay the implementation of projects. Taking this setting to the design of countercyclical policy, I argue that corporate income taxation can be a desirable instrument to use, as it is linked to the expected gains of firms, while interest rate policy or investment subsidies affect the cost of investment. In the third chapter, coauthored with Pawel Doligalski, we study how to design the tax system in an economy featuring an informal labor market, by extending the Mirrlees theory on optimal income taxation. We estimate the key elements of this model on Colombian data and compute the optimal tax schedule.
Table of Contents:
-- Learning in sovereign debt markets -- Expectations formation and investment during recessions -- Optimal redistribution with a shadow economy
Defence date: 18 November 2016; Examining Board: Professor Ramon Marimon, EUI, Supervisor; Professor Árpád Ábrahám, EUI; Professor Klaus Adams, University of Mannheim; Professor George Evans, University of Oregon
Type of Access: openAccess