Title: A Ramsey Theory of Financial Distortions
Speaker: Marco Bassetto, Federal Reserve Bank of Minneapolis
Time: 9.30am AEST, Monday 7 March 2022
Location: Online via Zoom. Join here.


The interest rate on government debt is lower than that of asset with similar payoffs. We study  optimal debt management and taxation when the government cannot directly redistribute towards the agents in need of liquidity but otherwise has access to a complete set of linear tax instruments. 

Optimal public liquidity provision calls for gradually closing the wedge between the returns as much as possible, but tax policy may work as a countervailing force: as long as financial frictions bind, it may be optimal to tax capital even if this magnifies the discrepancy in returns.


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