progressive taxation and macroeconomic in stability with productive government spending abstract this paper systematically examines the interrelations between a progressive income tax schedule and macroeconomic in stability in an otherwise standard one sector real business model with productive government spending we analytically show that the economy exhibits indeterminacy and sunspots if and only if the equilibrium after tax wage hours locus is positively sloped and steeper than the household s labor supply curve unlike in the framework with useless public expenditures a less progressive tax policy may operate like an automatic stabilizer that mitigates belief driven cyclical fluctuations moreover our quantitative analysis shows that this result is able to provide a theoretically plausible explanation for the discernible reduction in us output volatility after the tax reform act of 1986 was implemented

sectoral composition of government spending and macroeconomic in stability this article examines the quantitative interrelations between sectoral composition of public spending and equilibrium in determinacy in a two sector real business cycle model with positive productive externalities in investment when government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output we show that the public consumption share plays no role in the model s local dynamics and that a sufficiently high public investment share can stabilize the economy against endogenous belief driven cyclical fluctuations when each type of government spending is postulated as a constant proportion of the economy s total output we find that there exists a trade off between public consumption versus investment expenditures to yield saddle path stability and equilibrium uniqueness 2014 western economic association international

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

indeterminacy and stabilization policy abstract it has been shown that a one sector real business cycle model with sufficient increasing returns in production may possess an indeterminate steady state that can be exploited to generate business cycles driven by animal spirits of agents this paper shows how an income tax schedule that exhibits a progressivity feature can ensure saddle path stability in such a framework and thereby stabilize the economy against sunspot fluctuations conversely an economy with a flat or regressive tax schedule is more susceptible to indeterminacy journal of economic literature classification numbers e32 e62

are workers paid their marginal products status is like coase s social costs a reciprocal phenomenon given that one person s gain in status can occur only at the expense of a loss in status for others and that workers are free to choose their coworkers it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products the purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm s internal wage structure the paper is organized as follows section i briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers section ii then confronts the predictions of section i by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed section ii also examines the relationship between wages and productivity for a sample of university professors an occupation in which individual productivity differences are for a variety of obvious reasons relatively more difficult to measure all of the evidence examined is consistent with the hypothesis that within firms wage rates vary substantially less than do individual productivity values section iii discusses additional observations and evidence that bear on this same hypothesis it suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform section iv concludes by considering the claim that egalitarian internal wage structures arise because of equity considerations it argues that the concept of equity appears very closely linked to the concept of status and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions

optimal income tax in the presence of status effects abstract the existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax as a counter acting distortion the question posed here is whether it also constitutes a reason for a more progressive income tax schedule the answer is found to be broadly negative if progressiveness is interpreted as a more convex tax schedule unless the rich are more concerned with status seeking than the poor on the other hand status seeking makes the optimal tax schedule steeper so that redistribution is increased essentially the analysis of status seeking based on a signaling approach confirms and strengthens the existing view of an optimal tax schedule and can be incorporated into the diamond american economic review 88 1998 83 95 approach

indeterminacy and sunspots with constant returns recently there has been a renewed interest in the possibility of indeterminacy and sunspots or alternatively put in the existence of a continuum of equilibria that arises in dynamic economies with some market imperfections much of the research in this area has been concerned with the empirical plausibility of indeterminacy in markets with external effects or with monopolistic competition and which exhibit some degree of increasing returns while the early results on indeterminacy relied on relatively large increasing returns and high markups more recently benhabib and farmer 1996a showed that indeterminacy can also occur in two sector models with small sector specific external effects and very mild increasing returns

intra household inequality fairness and productivity evidence from a real effort experiment abstract this paper investigates experimentally how changes in wage rates and entitlements affect individual productivity in lab in the field experiments run with married couples from rural regions in uganda we design a game in which the production task itself is straightforward but where the rules governing payment vary across subjects and between rounds in some cases all the value of output goes to the husband in other cases all goes to the wife in other cases the value of output is shared equally and finally in some cases each spouse receives income according to only their own output to consider the effects of wage inequality we vary the price paid for each completed item so that the ratio of male to female wages varies from 0 5 to 2 all this is done transparently so that both partners know the rules of the game the results generally indicate that a rise in relative wages lowers relative effort a result that is contrary to the most straightforward interpretation of standard models of the household but compatible with some models of fairness men do not generally respond strongly to treatment in contrast women s labor supply is strongly backward bending when all income goes to the husband but effort rises with wages when each spouse gets to keep their own earnings the results therefore suggest that the effects of reforming or removing one inequality may depend critically on the existence of other inequalities

effort and comparison income experimental and survey evidence the authors test the hypothesis that individual effort on the job depends both on one s own income and on the individual s position in the relevant income distribution combining experimental evidence from a gift exchange game with multi country issp survey data they analyze the extent to which relative income affects an individual s effort finding that an individual s rank in the income distribution more strongly determines effort than does others average income which suggests that comparisons are more ordinal than cardinal their experiment also reveals that comparisons over time affect effort individuals who received higher income offers or enjoyed higher income rank in the past exerted lower levels of effort for a given current income and rank

balanced budget rules and macroeconomic in stability abstract it has been shown that under perfect competition and constant returns to scale a one sector real business cycle model may exhibit indeterminacy and sunspots when income tax rates are determined by a balanced budget rule with a pre set level of government expenditures this paper shows that indeterminacy disappears if the government finances endogenous public spending and transfers with fixed income tax rates under this type of balanced budget formulation the economy exhibits saddle path stability and equilibrium uniqueness regardless of the source of government revenue and or the existence of lump sum transfers

wage transparency and performance a real effort experiment abstract without transparency about peer wages in a real effort experiment a change of wages does not affect performance with transparency however higher paid workers tend to work more accurately and lower paid workers shirk more under piece rates

gift giving and worker productivity evidence from a firm level experiment abstract we present results from a field experiment designed to measure worker response to a monetary gift from their employer the experiment took place inside a tree planting firm paying its workforce incentive contracts firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity we compare planter productivity the number of trees planted per day on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block and thus under similar planting conditions we find direct evidence that the gift had a significant and positive effect on daily planter productivity controlling for planter fixed effects weather conditions and other random daily shocks

on the performance of nominal income targeting as a strategy for monetary policy in a small open economy abstract there is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework is nominal income targeting equally attractive in a small open economy this paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy we find that both the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect to the real exchange rate are important factors in assessing the attractiveness of nominal income targeting in a small open economy where the size of both parameters is not negligible a rule targeting the overall price level may actually be preferred to nominal income targeting

necessary conditions for welfare improving reforms abstract we develop necessary conditions for welfare improving reforms we show that our work may be useful in evaluating the desirability of preferential trading areas ptas and reforming article xxiv of gatt the conditions that no country necessarily loses from world trade reform are also derived

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

interdependent preferences and the competitive wage structure this article shows by example that when workers care about relative income and are free to choose their coworkers the equilibrium distribution of wages within firms must be less dispersed than the corresponding distribution of marginal products an implicit market for within firm status is shown to produce welfare gains by sorting workers among firms in accordance with how much they are willing to pay for high rank the resulting equilibrium pareto dominates allocations in which each worker is paid his marginal product

tournaments without prizes evidence from personnel records we use a quasi experimental research design to study the effect of giving workers feedback on their relative performance the setting is a firm in which workers are paid piece rates and where for exogenous reasons management begins to reveal to workers their relative position in the distribution of pay and productivity we find that merely providing this information leads to a large and long lasting increase in productivity that is costless to the firm our findings are consistent with the interpretation that workers incipient concerns about their relative standing are activated by information about how they are performing relative to others this paper was accepted by olav sorenson organizations

in search of workers real effort reciprocity a field and a laboratory experiment we present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages work effort neither reacts to an increase of the own wage nor to a positive or negative peer comparison this result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort in an additional real effort laboratory experiment we show that explicit cost and surplus information that enables an exact calculation of an employer s surplus from the work contract is a crucial prerequisite for a positive wage effort relation this demonstrates that an employee s reciprocity requires a clear assessment of the surplus at stake jel c91 c92 j41

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

chaos sunspots and automatic stabilizers abstract we consider a real business cycle model with an externality in production depending on parameter values the model has sunspot equilibria cyclical and chaotic equilibria and equilibria with deterministic or stochastic regime switching we study the implications of this model environment for automatic stabilizer tax systems stabilization is desirable because the efficient allocations are characterized by constant employment and output growth we identify an automatic stabilizer income tax subsidy schedule with two properties i it specifies the tax rate to be an increasing function of aggregate employment and ii earnings are subsidized when aggregate employment is at its efficient level the first feature eliminates inefficient fluctuating equilibria while the second induces agents to internalize the externality

gender differences in motivational crowding out of work performance this paper shows that prior financial incentives induce a crowding out effect when incentives are discontinued in our real effort experiment workers receive a piece rate before monetary incentives are substituted by a one time payment in this case workers performance significantly drops when receiving the one time payment the effect is driven by a fraction of men who reduce effort substantially whereas women constantly perform well we find that this motivational crowding out effect disappears when men do not have prior experience of a piece rate in a series of control treatments we discard several alternative explanations besides motivational crowding out jel c91 j16 m54

measuring protection a cautionary tale abstract this paper comments on a theoretically based index of protection recently developed by anderson and neary the index must be calculated within the context of a specific cge model anderson and neary propose a generic model and have found that the index is robust to changes in the elasticities embedded within that model is the index also robust to changes in the specification of the model the paper identifies one historical instance where the index is extremely sensitive to the specification of the model s demand side there are important methodological lessons to be learnt from this example

indexing the income tax code monetary fiscal interaction and the great moderation abstract this paper considers the consequences of automatically indexing the us federal income tax code to inflation indexation implemented during the 1981 federal tax overhaul and active monetary policy constitute necessary conditions for a unique rational expectations equilibrium in standard new keynesian models with a generalized progressive labor income tax additionally fixing the monetary regime shows that indexation reduces overall volatility in the model as well as the contribution of supply side disturbances together these results support a fiscal extension to the good policy hypothesis of the great moderation and encourage further indexation of the united states tax code

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

relative pay and labor supply we examine the impact of relative wages on labor supply in a laboratory experiment we test the hypothesis that ceteris paribus making a given wage high low relative to other wage levels will lead to an increase decrease in labor supply we find that labor supply does respond significantly to relative pay and in the expected direction however when a strong enough reason for the relative low pay is given this difference disappears

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

progressive taxation and long run growth since the emergence of early endogenous growth models larry e jones and rodolfo e manuelli 1990 sergio rebelo 1991 a large body of work has studied the growth effects of tax reform while virtually all of this literature has confined itself to the analysis of flat rate taxes tax codes are generally progressive this paper therefore explores the effects of progressive taxes in conventional growth models with heterogenous households in such frameworks the tax code helps to determine simultaneously the pre tax income distribution and the rate of technical progress we present three main findings first we show that when variations in tax codes stem from differences in progressivity shares of tax revenue in gdp or income may constitute poor proxies for average marginal tax rates in particular we find that the decrease in progressivity associated with the tax reform act of 1986 tra 86 lowered the u s average marginal tax rate by 0 06 to 0 37 percentage points depending on the model used at the same time however the endogenous adjustment in the distribution of income produced by this progressivity change contributed to raising the tax share of income by approximately 0 8 percentage points because marginal tax rates are not easily observable empirical work often has to make use of tax shares in income as an alternative to the degree that lower marginal rates entail less tax distortion our study suggests that relying on tax shares may cause less progressive tax codes to be incorrectly perceived as more distortional second we find that the progressivity decrease implied by tra 86 helped raise u s per capita gdp growth by 0 12 to 0 34 percentage points given the prominence of tra 86 compared with other u s tax reforms over the past four decades these growth effects while not negligible as in robert e lucas 1990 shed doubt on the potential for tax policy to alter significantly prospects for u s long run growth finally consistent with previous work our analysis suggests that the progressivity change associated with tra 86 had a significant effect on income inequality resulting in a 20to 24percent increase in the gini coefficient of income we carry out our analysis using two prototypical endogenous growth models augmented to include a nondegenerate distribution of income these models one first formulated by robert j barro 1990 and the other by rebelo 1991 account for two polar extremes regarding the use of tax proceeds on the one hand in rebelo s two sector framework tax revenue is spent in a way that affects neither the marginal utility of private consumption nor the production possibilities of the private sector on the other hand in the environment envisioned by barro 1990 all tax revenue serves to finance public services that enhance private production interestingly the results we have just described emerge irrespective of the framework under consideration

indeterminacy in a model with sector specific externalities abstract i examine a model with two sectors of production consumption and investment in the model indeterminacy of equilibria results due to the presence of small sector specific externalities in production in fact i find that indeterminacy results with a certain minimum value of the externality in the investment sector even with no externality in the consumption sector i find that the indeterminacy properties of the model vary depending on the form of the utility function for example with utility that is logarithmic in consumption these properties are completely independent of the value of the externality in the consumption sector

growth effects of shifting from a graduated rate tax system to a flat tax i introduction recently the debate concerning fundamental u s tax reform has led to a number of proposals that involve a shift toward a consumption based system 1 one such proposal is the so called flat tax of hall and rabushka 1995 the flat tax would apply a single tax rate to all labor income above a given threshold and to all capital income after fully expensing investment expenditures hall and rabushka 1995 argue that the adoption of their proposal would provide an enormous boost to the u s economy by dramatically improving incentives to engage in productive activities and would save taxpayers hundreds of billions of dollars in compliance and administration costs 2 in this article we develop a quantitative general equilibrium model to assess the growth effects of adopting a flat tax plan similar to the one proposed by hall and rabushka 1995 the model captures many of the features of the current u s tax code such as graduated personal tax rates a standard personal deduction separate tax rates applied to personal and business income double taxation of business income and differential tax treatment of physical and human capital under appropriate parameter settings the model can exhibit either endogenous or exogenous long run growth our choice of functional forms facilitates a closed form solution to the model this allows us to characterize explicitly the economy s transition path following the reform a central issue in the debate over fundamental tax reform is the effect that such a reform would have on economic growth the present analysis builds on the work of stokey and rebelo 1995 who use an endogenous growth framework to identify the key model features and parameters that are important for determining the quantitative impacts of distortionary taxes on long run growth 3 our study differs from theirs and the bulk of the dynamic tax literature in one fundamental respect here we evaluate the growth effects of shifting from a graduatedrate tax system to a flat rate system stokey and rebelo 1995 consider only flat rate systems in which the marginal tax rate is equal to the average tax rate we approximate the graduated rate tax system in the u s economy by an empirical tax rate function that allows the personal tax rate to depend positively on household taxable income in equilibrium household decisions are influenced by both the level and slope of the tax schedule to implement the flat tax reform we shift the parameters of the tax rate function to flatten the marginal tax schedule while maintaining revenue neutrality our methodology treats the hall rabushka proposal as one that in effect moves a representative household from one tax rate schedule to another we view this setup as a reasonable approximation to gauge the growth effects of tax reform at the macro level a more elaborate setup would of course allow for household heterogeneity at a given point in time in this regard we note that caucutt et al 2003 have recently examined the growth effects of graduated rate taxes in a two period overlapping generations model that includes both skilled and unskilled agents in their model a flatter tax schedule increases the fraction of skilled agents in the economy the share of total output devoted to education rises accordingly and the economy s long run growth rate is observed to increase the quantitative implications of their model are difficult to compare to ours however because their two period framework implies a very long time horizon between household decisions about 30 years moreover their model abstracts from many of the features of the u s tax code that we include here in addition to examining the consequences of flattening the marginal tax schedule we investigate the growth effects attributable to other parts of the flat tax proposal such as allowing full investment expensing eliminating the double taxation of business income and increasing the standard personal deduction

the effect of production technology on trust and reciprocity in principal agent relationships with team production we introduce differently sized teams rather than a single worker and three production technologies to an otherwise standard gift exchange environment to study experimentally whether and to what extent trust and reciprocity is affected moving to a team of workers introduces new motivations such as free riding and coordination burden that are likely to intensify with team size and the technology used by the firm we find that the positive relationship between wages and effort although affected still holds workers reduce their efforts when coordination for efficiency is more difficult using a particular production technology results also suggest that for any given technology firms react to their relevant outcome profitability and not just to workers efforts