Optimal taxes and debt levels could boost welfare and economic growth
The article explores how to best manage taxes and public debt in a long-term economic model with limited markets. It suggests that taxing labor income and supporting capital is beneficial, along with having some public debt. The study shows that having a positive tax on capital can be good if people are not very responsive to changes in savings. When applied to the US, the model suggests that having some taxes and a small amount of debt can be optimal for the economy.