Optimal Redistributive Taxation in a Search Equilibrium Model

This paper characterizes optimal non-linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets. Redistributive taxation distorts labour demand and wages. Compared to their efficient values, gross wages, unemployment, and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even at the top. Finally, numerical simulations suggest that redistribution is much more important in our setting than in a comparable Mirrlees-type setting.     

Deviations from Purchasing Power Parity in the Long Run

This paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods, for a wide variety of countries, and in both monthly and annual data. Since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage, the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism.