We study the incidence and the optimal design of nonlinear income taxes in a Mirrleesian economy with a continuum of endogenous wages. We characterize analytically the incidence of any tax reform by showing that one can mathematically formalize this problem as an integral equation. For a CES production function, we show theoretically and numerically that the general equilibrium forces raise the revenue gains from increasing the progressivity of the U.S. tax schedule. This result is reinforced in the case of a Translog technology where closer skill types are stronger substitutes. We then characterize the optimum tax schedule, and derive a simple closed-form expression for the top tax rate. The U-shape of optimal marginal tax rates is more pronounced than in partial equilibrium. The joint analysis of tax incidence and optimal taxation reveals that the economic insights obtained for the optimum may be reversed when considering reforms of a suboptimal tax code.
We find that three factors – cryptocurrency market, size, and momentum – capture the cross-sectional expected cryptocurrency returns. We consider a comprehensive list of price- and market-related return predictors in the stock market, and construct their cryptocurrency counterparts. Ten cryptocurrency characteristics form successful long-short strategies that generate sizable and statistically significant excess returns, and we show that all of these strategies are accounted for by the cryptocurrency three-factor model. Lastly, we examine potential underlying mechanisms of the cryptocurrency size and momentum effects.
This article studies the structural transformation of Russia in 1885–1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a data set that covers Tsarist Russia during 1885–1913 and Soviet Union during 1928–1940. We develop a methodology that allows us to identify the types of frictions and economic mechanisms that had the largest quantitative impact on Russian economic development. We find that entry barriers and monopoly power in the nonagricultural sector were the most important reason for Tsarist Russia’s failure to industrialize before World War I. Soviet industrial transformation after 1928 was achieved primarily by reducing such frictions, albeit coinciding with a significantly lower performance of productivity in both agricultural and nonagricultural sectors. We find no evidence that Tsarist agricultural institutions were a significant barrier to labour reallocation to manufacturing, or that “Big Push” mechanisms were a major driver of Soviet growth.
We study the incidence and the optimal design of nonlinear income taxes in a Mirrleesian economy with a continuum of endogenous wages. We characterize analytically the incidence of any tax reform by showing that one can mathematically formalize this problem as an integral equation. For a CES production function, we show theoretically and numerically that the general equilibrium forces raise the revenue gains from increasing the progressivity of the U.S. tax schedule. This result is reinforced in the case of a Translog technology where closer skill types are stronger substitutes. We then characterize the optimum tax schedule, and derive a simple closed-form expression for the top tax rate. The U-shape of optimal marginal tax rates is more pronounced than in partial equilibrium. The joint analysis of tax incidence and optimal taxation reveals that the economic insights obtained for the optimum may be reversed when considering reforms of a suboptimal tax code.
This paper studies strategic information transmission in a dynamic environment where, each period, a privately informed expert sends a message and a decision maker takes an action. Our main result is that, in contrast to a static environment, full information revelation is possible. The gradual revelation of information and the eventual full revelation is supported by the dynamic rewards and punishments. The construction of a fully revealing equilibrium relies on two key features. The first feature is that the expert is incentivized, via appropriate actions, to join separable groups in which she initially pools with far-away types, then later reveals her type. The second feature is the use of trigger strategies. The decision maker is incentivized by the reward of further information revelation if he chooses the separation-inducing actions, and the threat of a stop in information release if he does not. Our equilibrium is non-monotonic. With monotonic partition equilibria, full revelation is impossible.