We study dynamic optimal taxation in a class of economies with private information.Optimal allocations in these environments are complicated and history-dependent.Yet,we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems.The market structure in these economies is similar to that in Bewley(1986);agents supply labour and trade risk-free claims to future consumption,subject to a budget constraint and a debt limit.Optimal taxes are conditioned only on two observable characteristics-an agent's accumulated stock of claims,or wealth,and her current labour income.We show that optimal taxes are generally non-linear and non-separable in these variables and relate the structure of marginal wealth and income taxation to the properties of agent preferences.
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