Comment on: 'Optimal Taxation in the Presence of Bailouts'

8 Pages Posted: 7 Jan 2015  

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: November 13, 2009

Abstract

Panageas' "Optimal taxation in the presence of bailouts" provides a model where labor income taxation is used to finance bailouts and bailouts are always optimal. Labor income taxes are countercyclical: they are lower in economic downturns to alleviate the stress on the financial sector and higher in upturns so a bailout can be financed.

I argue that the decision to do a bailout should not be independent of the way the bailout is financed: I discuss moral hazard issues, and redistributive issues associated with taxing labor income to finance a bailout of financial services firms. I conclude discussing alternative ways to deal with the debt overhang problem in the model.

Keywords: bailouts, taxes, labor income

Suggested Citation

Albuquerque, Rui A., Comment on: 'Optimal Taxation in the Presence of Bailouts' (November 13, 2009). Journal of Monetary Economics, Vol. 57, 2010. Available at SSRN: https://ssrn.com/abstract=2543380

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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