benefits conditional on work and the nordic model abstract welfare benefits in the nordic countries are often tied to employment we argue that this is one of the factors behind the success of the nordic model where a comprehensive welfare state is associated with high employment in a general equilibrium setting the underlining mechanism works through wage moderation and job creation the benefits make it more important to hold a job thus lower wages will be accepted and more jobs created moreover we show that the incentive to acquire higher education improves further boosting employment in the long run these positive effects help in counteracting the negative impact of taxation through numerical simulations we show how this mechanism can contribute to explain the better labor market performance and more equitable income distribution of nordic countries compared to continental european ones

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

an analysis of the laffer curve the laffer curve shows the relationship between tax revenue and the personal income tax rate with tax revenue being a presumably concave function of the tax rate and equal to zero at tax rates of zero percent and 100 percent if the personal income tax rate is reduced then tax revenue will decrease increase if the economy is on the positively negatively sloped section of the laffer curve this paper derives a sufficient condition for the economy to be on the positively sloped section of the laffer curve in light of the current knowledge of the elasticities of supply of labor and supply of saving it is difficult to escape the conclusion that a decrease in u s personal income tax rates will decrease tax revenue

the effect of income taxation on labor supply in the united states the effect of income taxation on the labor supply of prime age married men and women in the united states is examined using econometric methods similar to those used in the influential work of jerry hausman male labor supply is found to be relatively invariant to the net wage and virtual income in all specifications estimated the estimated impact of taxation on the labor supply of married women depends critically on the method used to estimate the labor supply function estimated net wage and virtual income elasticities are considerably larger when data on nonparticipants are included than when the estimation is conducted conditional on hours being greater than zero

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

nature of transfers income tax function and empirical estimation of elasticity of taxable income for brazil abstractthis article aims to estimate the elasticity of taxable income eti taking into account the nature of transfers and their use as a redistribution package involving cash and in kind transfers to households in brazil our contributions are twofold first we provide a simple model with balanced budget government that reveals the role played by cash and in kind transfers on the labour supply and income tax revenues thereof next in order to estimate eti in the presence of cash and in kind transfers brazilian population surveys pesquisa nacional por amostra de domicilios pnad are used to explore a limited tax reform that was implemented between 1997 and 1998 this reform only affected the higher income tax bracket our findings suggest that in kind cash transfers are positively negatively associated with reported taxable income and precise estimation of eti requires estimates of both types of transfers last we estimate the eti for brazil in the range from 0 4 to 1 3 not different fro

a probability based stress test of federal reserve assets and income to support the economy the federal reserve amassed a large portfolio of long term bonds we assess the fed s associated interest rate risk including potential losses to its treasury securities holdings and declines in remittances to the treasury unlike past examinations of this interest rate risk we attach probabilities to alternative interest rate scenarios these probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields the resulting probability based stress test finds that the fed s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation

income redistribution an international perspective many view global income inequality as a problem income redistribution from the rich countries to poor countries is often offered as a solution however such redistribution would have to be politically acceptable to voters in rich countries to occur using a constructed distribution of world income we show that even modest income redistribution efforts would impose significant costs on taxpayer voters in rich countries we conclude such income redistribution is unlikely

politics deficits and the laffer curve even if there were only a positively sloped tax rate tax revenue relationship or if a negatively sloped region were not in the relevant tax rate range the existence of a lagged private sector response to tax rate change that exceeds the relevant time horizon for political decision makers is conducive to the existence of a budget deficit bias given the existence of a negatively sloped region of the laffer curve especially if it begins at reasonably low tax rates determined attempts to eliminate or just reduce deficits can become self defeating particularly if there is a structural deficit 3 moreover once the economy is on the downward sloping portion of the laffer curve a combination of political expediency uncertainty about the shape of the curve and a common belief that tax rate increases reduce deficits all can conspire to keep the budget trapped in deficit finally given the existence of inflation and a marginally progressive income tax deficit growth may be less if there is indexation of income tax rates to inflation contrary to conventional wisdom

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

labour supply in italy an empirical analysis of joint household decisions with taxes and quantity constraints this study applies an econometric framework which allows for complex non convex budget sets highly non linear labour supply curves and imperfect markets with institutional constraints a married couple s version of the model is estimated on italian microdata the empirical results show that male labour supply is rather inelastic while labour supply among females especially participation is considerably more elastic the elasticities depend strongly on household income the largest elasticities are found for females living in poor households the results of the tax simulations suggest that there are only modest labour supply responses from replacing the 1987 system by proportional taxes copyright 1999 john wiley sons ltd

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

labour tax reform the good jobs and the bad jobs we analyse recent proposals to shift the tax burden away from low paid labour assuming a dual labour market where the good high paying jobs are rationed a shift in the tax burden from low paid to high paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is further distorted even if the tax reform raises total employment economic efficiency may be reduced because labour is reallocated from high productive to low productive jobs we also find that opportunities for on the job search have important implications for the policy effects

marginal cost of public funds for different tax instruments and government expenditures the marginal cost of public funds that is the size of the direct and indirect excess burden costs for marginal tax revenues is examined in this paper for an open economy with a savings response and using swedish 1979 data the marginal cost of public funds spent on transfer payments is estimated to vary from 1 47 for a distributionally neutral tax on labor and capital to 7 20 for a more progressive tax where average and marginal labor taxes increase by the same rates for changes in the most important tax instrument the marginal cost of public funds varies from 0 98 for expenditures on infrastructure to 2 27 for transfer payments

the effect of unconventional monetary policy on cross border bank loans evidence from an emerging market abstract we analyze the impact of quantitative easing by the federal reserve european central bank and bank of england on cross border credit flows relying on comprehensive loan level data we find that fed qe strongly boosts cross border credit granted to turkish banks by banks located in the us euro area and uk while ecb and boe qes work only moderately through banks in the ea and uk respectively in general qe works at short maturities across bank locations and loan currencies more strongly for weaker lenders and borrowers and may have resulted in maturity mismatches in turkish banks searching for yield 99 words

money for nothing universal child care and maternal employment abstract the strong correlation between child care and maternal employment rates has led previous research to conclude that affordable and readily available child care is a driving force both of cross country differences in maternal employment and of its rapid growth over the last decades we analyze a staged expansion of subsidized child care in norway our precise and robust difference in differences estimates reveal that there is little if any causal effect of subsidized child care on maternal employment despite a strong correlation instead of increasing mothers labor supply the new subsidized child care mostly crowds out informal child care arrangements suggesting a significant net cost of the child care subsidies

does central bank communication signal future monetary policy in a post crisis era the case of the ecb abstract we examine the european central bank s ad hoc communication and explore how it informs future monetary policy decisions using the rich dataset of the inter meeting verbal communication by the members of the european central bank s governing council between 2008 and 2016 we construct a measure of communication evaluating its inclination towards easing tightening or maintaining the monetary policy stance we find that this measure provides useful additional information about future monetary policy decisions even when we control for market based interest rate expectations and lagged decisions our results also suggest that in particular communication related to conventional measures and or by the ecb president explain the future ecb rate changes well all aforementioned results hold also in the environment of the zero lower bound overall these results point to the importance of transparent communication in understanding the future course of monetary policy

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

which commodity taxes should supplement the income tax the analysis takes as its point of departure a continuum of consumers economy in which an optimum income tax exists and is the only tax instrument in operation the welfare effects of introducing small excise taxes to supplement the income tax are then explored essential in this context are changes in the tax distortions of work incentives it is shown that a commodity should be taxed or subsidized depending on whether it is positively or negatively related to leisure in a sense which is precisely defined the results are related to earlier contributions to the literature on direct versus indirect taxation the history of debates on the proper roles of direct and indirect taxation goes back at least to the days of gladstone as well described by atkinson 1977 the prevailing political opinion of the balance between the two types of taxes has varied over time at present the swing in a number of european countries seems to be in favour of reforms towards tax systems which rely more heavily on indirect taxation and less on income taxation in view of this long economic political record it is not surprising that the choice between income tax and commodity taxes has also become an important subject in tax theory an early contribution to the understanding of this issue was corlett and hague 1953 54 their main model considers a three good economy containing leisure and two taxed commodities there is only one consumer or a population of identical consumers labour is the only source of income producer prices are fixed the government s revenue requirement is given the starting point of the analysis is a situation in which the two commodities are taxed at uniform rates the question which is analyzed is then how the government can raise welfare by slightly differentiating the tax rates the answer which is derived is that the consumer good which is the stronger substitute for labour complement with leisure should be taxed at

macroprudential and monetary policies the need to dance the tango in harmony abstract considering a sample of 37 emerging and advanced economies from 2000q1 to 2014q4 we empirically assess how effective macroprudential policies are in curbing domestic credit growth and whether their effectiveness is affected by monetary policy conditions we obtain three important results first our findings suggest in line with previous research that an overall tightening in macroprudential policies is associated with a reduction in credit growth second we show that a restrictive monetary policy enhances the impact of macroprudential tightening on credit growth third our results seem to suggest that monetary policy helps to reduce the transmission delay of macroprudential policy actions consequently our results confirm the need for coordination between the two policies

theory of screening and the behavior of the firm comment possibilities the concept of equilibrium differs depending upon the assumptions concerning the behavior of the firm as michael rothschild and stiglitz and others point out in this comment i reconsider the stiglitz screening model assuming that the behavior of the firm is more responsive to profitable possibilities than that considered by stiglitz i show that the screening process in the stiglitz model has similarities with that in the spence model in some aspects i also point out other characteristics of the stiglitz model considering the existence of equilibria in the cases of no social return from screening and of positive social return from screening and show that the existence of equilibria depends upon the supposed behavior of the firm and the concept of equilibrium in the stiglitz model

international labor economics i argue for increased reliance on non u s data and policy evaluations to understand basic labor market parameters and to predict the effects of changes in u s labor market policies foreign experiences generate exogenous shocks to labor costs that create unusual opportunities to measure impacts on labor demand foreign policies often provide more variation in the underlying parameters in systems that are often structured like their american counterparts foreign data sets are often larger and better suited to inferring behavior an empirical examination shows the effect of author s location data set and journal on the research s subsequent impact

welfare and optimum dynamic taxation of consumption and income abstract this paper estimates that the us could attain large welfare gains by implementing an optimal ramsey tax policy that taxes consumption and income it is also found that the welfare implications associated with taxing consumption are quantitatively more important than those associated with dynamically taxing income indeed replacing income taxes with a constant consumption tax leads to a welfare gain that is only slightly lower than that attained by a dynamic policy that taxes consumption and income in computing these welfare gains careful attention is given to the dynamic path of tax rates and the transitional dynamics associated with how the economy responds to a new tax policy

a comparison of the labor supply findings from the four negative income tax experiments between 1968 and 1982 the united states federal government sponsored four negative income tax experiments this paper provides a set of consensus estimates of the labor supply responses to these experiments it is found that despite the wide range of treatments and evaluation methodologies the results are remarkably consistent on average husbands reduced labor supply by about the equivalent of two weeks of full time employment wives and single female heads reduced labor supply by about the equivalent of three weeks of full time employment youth reduced labor supply by about the equivalent of four weeks of full time employment estimated income and substitution effects are quite similar to those obtained from nonexperimental studies

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

the extensive macro labor supply elasticity integrating taxes and expenditures abstract this paper shows that accounting for certain public expenditures is crucial when comparing labor tax system efficiencies across countries to measure the extensive margin response to taxation i assemble a large cross country dataset consisting of the employment ratios the average effective tax rates the out of work benefits transfers as well as public expenditures on childcare elderly care and family policy covering all oecd countries and more than two decades when not controlling for the country and year fixed effects the extensive margin elasticities are negative once accounting for transfers the elasticities are negative or at most flat even with fixed effects once additionally accounting for public expenditures subsidies on labor complements which are robustly positively associated with the employment to population ratios i obtain either flat or positive extensive margin elasticities in the lower end of the expected range

tax evasion and the marginal cost of public funds tax evasion and deadweight loss have similar implications for the rules of public finance the optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion similarly the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

child benefits maternal employment and children s health evidence from canadian child benefit expansions industrial countries typically provide income transfers to families with young children traditionally these family benefit programs were motivated by distributional concerns families with children faced higher expenditure needs than other families and a concern for horizontal equity led to transfers throughout the 1990s however many countries introduced benefits aimed at improving labor market incentives for mothers with young children in the united states the earned income tax credit eitc has played this role but similar programs exist in europe canada and elsewhere much effort has been expended on evaluating the labor market impact of child benefits however less work has examined the impact of these programs on broader outcomes such as the mental and physical health of both the children and the parents outcomes that follow from the traditional equity motivation for child benefits in this paper we review and extend some recent results studying the expansion of family benefits in canada in particular we exploit a change that occurred in the province of manitoba to highlight the effects of child benefits on both labor supply and family outcomes

alternative approaches to analyzing markets with asymmetric information reply shiro yabushita s comment on the theory of screening stiglitz 1975 raises some interesting questions which have arisen in a number of different contexts how should one model markets with imperfect information what are appropriate behavioral postulates and equilibrium concepts to restructure the question in terms of game theoretic language who are the active players what are their strategy spaces do the players move simultaneously or does one move before the other these questions do not have simple answers different equilibrium notions are appropriate for different economic contexts yabushita s comment illustrates how one can obtain markedly different results using alternative assumptions although we believe that for the particular context examined in stiglitz 1975 the equilibrium concept employed there is better than the alternative implicitly proposed by yabushita his formulation merits attention and there are other contexts in which his would be the appropriate formulation in order to illuminate how the yabushita model differs from the stiglitz model it is useful to reformulate their analyses in game theoretic terms the strategies of individuals entail decisions as to whether or not to screen themselves go to school while the strategies of firms are wage offers conditioned on whether or not the individual has screened himself and the result of that screening an individual goes to work for the firm which offers him the highest wage thus the payoff to the firm is zero if it doesn t obtain the worker and the difference between the worker s productivity and his wage if it obtains the worker the payoff to the individual is his maximum wage offer minus his screening costs there are two alternative ways of viewing the difference between the yabushita and stiglitz formulations of the education market one way is to view yabushita and stiglitz as differing in their assumptions about whether firms or individuals move first the choice of a schooling program is typically made by individuals before a wage offer is received the stiglitz model attempts to capture this natural temporal sequence of decision making by formulating a two period model in the first period individuals decide whether or not to screen themselves while in the second profit maximizing firms offer wages to both screened and unscreened individuals who in turn go to work for the firm offering them the highest wage the wage offer of each firm is assumed to be the profit maximizing response to the screening decision of workers given the wage offers of other firms hence if any high ability worker screens himself he will receive a wage equal to his expected productivity 9k if no workers screen themselves the unscreened workers receive a wage equal to their expected productivity of 0 and if the type 1 workers screen themselves the unscreened workers receive a wage of 02 their expected productivity in each case higher wages would incur losses and a lower wage could not be an equilibrium since there would be an opportunity for some other firm to increase its profits by offering a higher wage 2

tax analysis in a real business cycle model on measuring harberger triangles and okun gaps abstract a tax distorted real business cycle model is parameterized calibrated and solved numerically in an attempt to measure the size of harberger triangles relative to okun gaps in particular the model constructed is used to study quantitatively the impact of various distortional government tax and subsidy schemes it is shown that the government can use tax policy to stabilize cyclical fluctuations and this is done for the economy being studied the benefits of implementing such a stabilization policy are calculated and compared with the size of the welfare gains realized from reducing various tax distortions

welfare reform in european countries a microsimulation analysis this article compares the effects of increasing traditional welfare to introducing in work benefits in the 15 pre enlargement countries of the european union we use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins and the euromod microsimulation model to estimate current marginal and participation tax rates we quantify the equity efficiency trade off for a range of elasticity parameters in most countries because of large existing welfare programmes with high phase out rates increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme in contrast the in work benefit reform is desirable in a very wide set of cases

monetary policy expectations at the zero lower bound we show that conventional dynamic term structure models dtsms estimated on recent u s data severely violate the zero lower bound zlb on nominal interest rates and deliver poor forecasts of future short rates in contrast shadow rate dtsms account for the zlb by construction capture the resulting distributional asymmetry of future short rates and achieve good forecast performance these models provide more accurate estimates of the most likely path for future monetary policy including the timing of policy liftoff from the zlb and the pace of subsequent policy tightening we also demonstrate the benefits of including macroeconomic factors in a shadow rate dtsm when yields are constrained near the zlb

distortionary taxation and labor supply this paper examines empirically the effects of distortionary taxation on labor supply using a general equilibrium framework the long term relations predicted by the model are derived and tested using data from canada united states germany and japan in all these countries labor tax changes are found to be persistent and to have played an important role in the observed downward trend in hours worked

a note of caution on shadow rate estimates shadow short rate ssr estimates are generated regressors proposed as a proxy for policy interest rates during unconventional monetary policy ump periods however using the wu and xia 2016 shadow lower bound model i show that ssr estimates can be sensitive to minor choices in their estimation used subsequently in a small macroeconomic model those sensitivities lead to wide variations in the inferred effects of ump on inflation and unemployment outcomes therefore it should not be presumed that any ssr series will necessarily be quantitatively useful vetting ssr series allows appropriate ssr series to be retained within the suite of ump indicators

a model of monetary policy shocks for financial crises and normal conditions in their classic 1999 paper monetary policy shocks what have we learned and to what end christiano eichenbaum and evans cee investigate one of the most widely used methods for identifying monetary policy shocks of its time unfortunately their approach is no longer viable at least not in its original form a major problem stems from the recent behavior of two key variables in their model the fed funds rate and non borrowed reserves we develop a new identification scheme that remedies these diculties but maintains the basic cee framework our empirical specification is motivated by a standard new keynesian dsge model augmented by a simple financial structure the model provides theoretical support for variables we use in place of certain variables that were used in the classic var approach outlined in cee one significant innovation is our use of divisia m4 the broadest monetary aggregate currently available for the united states as the policy indicator variable we obtain four major empirical results that support the use of a properly measured broad monetary aggregate as the policy variable first policy shocks have significant eects on output and on the price level even when an interest rate is included in our model contradicting the new keynesian argument that monetary aggregates are redundant second we develop a model that is not subject to the output price or liquidity puzzles common to this literature contradicting the view that using the interest rate as the policy indicator generally yields more reasonable responses than a monetary aggregate third during normal conditions policy shocks from our divisia based model have similar eects on variables to those found in the fed funds model of monetary policy and where there are dierences our model with divisia m4 obtains results that are more consistent with standard economic theory fourth our preferred specification produces plausible responses to a monetary policy shock in samples that include or exclude the recent financial crisis

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

the effects of taxes on aggregate labor a cross country general equilibrium study at empirically reasonable labor supply elasticities equilibrium models of public finance predict that greater taxes in a country should lead to lower aggregate labor we examine data from a cross section of 22 oecd economies for such a relationship the approach is to

the welfare state in transition reforming the swedish model acknowledgments introduction richard b freeman robert topel birgitta swedenborg 1 generating equality and eliminating poverty the swedish way anders bjorklund richard b freeman 2 public employment taxes and the welfare state in sweden sherwin rosen 3 tax policy in sweden erik norrman charles e mclure jr 4 wage policy and restructuring the swedish labor market since 1960 per anders edin robert topel 5 the effects of sweden s welfare state on labor supply incentives thomas aronsson james r walker 6 an evaluation of the swedish active labor market policy new and received wisdom anders forslund alan b krueger 7 taxes and subsidies in swedish unemployment lars ljungqvist thomas j sargent 8 the social costs of regulation and lack of competition in sweden a summary stefan folster sam peltzman 9 industrial policy employer size and economic performance in sweden steven j davis magnus henrekson 10 a heckscher ohlin view of sweden competing in the global marketplace edward e leamer per lundborg contributors author index subject index

optimal unemployment insurance in search equilibrium should unemployment benefits be paid indefinitely at a fixed rate or should the rate decline or increase over a worker s unemployment spell we examine these issues using an equilibrium model of search unemployment the model features worker firm bargaining over wages free entry of new jobs and endogenous search effort among the unemployed the main result is that an optimal insurance program implies a declining benefit sequence over the spell of unemployment numerical calibrations of the model suggest that there may be nontrivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

structural models of family labor supply a discrete choice approach a static neoclassical structural model is presented explaining labor supply of both spouses in two adult households in the netherlands family preferences are described with a direct translog utility function with the husbands leisure the wifes leisure and family income as its arguments we assume that the choice set of each family is finite account is taken of the dutch tax and benefits system we allow for hours restrictions and random preferences and account for unobserved wages of nonworkers the models are estimated using smooth simulated maximum likelihood results based upon dutch cross section data from 1987 are illustrated by confidence intervals for elasticities and by several policy simulations excerpt

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

comparing labor supply elasticities in europe and the united states new results we suggest the first large scale international comparison of labor supply elasticities for 17 european countries and the united states using a harmonized empirical approach we find that own wage elasticities are relatively small and more uniform across countries than previously considered nonetheless such differences do exist and are found not to arise from different tax benefit systems wage hour levels or demographic compositions across countries suggesting genuine differences in work preferences across countries furthermore three other findings are consistent across countries the extensive margin dominates the intensive margin for singles this leads to larger responses in low income groups and income elasticities are extremely small

lifetime and annual marginal costs of redistribution in england sweden and the united states both the annual and lifetime marginal costs of redistribution in england sweden and the united states are calculated the annual marginal cost of redistribution is 2 90 in the united states 3 53 in england and 6 77 in sweden the lifetime marginal cost of redistribution is 4 46 in the united states and 7 96 in england the lifetime marginal cost of redistribution in sweden indicates that additional redistribution reduces the incomes of both the poor and nonpoor this study also shows that when there is greater income equality the marginal tax rate at which the incomes of the poor and nonpoor begin to be reduced will be at lower and lower levels copyright 1993 by mit press

swedish tax rates labor supply and tax revenues effective marginal tax rates on labor income for the representative swede have increased from roughly 50 percent in 1959 to 80 percent today the effects of this increase in the level of taxation are examined using a two sector model parameterized to correspond to the swedish economy the model contains a single household which allocates labor to either taxed essentially market or untaxed largely household uses the estimated long run effects are sufficient to explain up to 75 percent of the recent decline in the measured growth rate of the swedish gnp calculations of total tax revenues are also derived from the model these peak when the tax rate is approximately 70 percent indicating that sweden is presently on the downward sloping portion of its laffer curve

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

the welfare cost of the underground economy this paper estimates the welfare cost of taxes that create an incentive for resources to flow to the underground or untaxed sector in the united states using a general equilibrium model of the american economy the welfare cost is found to be large and growing in absolute and relative terms over time in 1980 the welfare cost may be as much as 220 billion or over 9 percent of output even conservative estimates place the loss at nearly 100 billion it also is found that small reductions in tax rates substantially reduce the welfare cost

estimating labour supply elasticities based on cross country micro data a bridge between micro and macro estimates the nordic model relies on high tax rates to finance an extensive welfare state if labour supply elasticities are large the burden of financing the model can be large even if arguably the practice of providing subsidised goods that support labour supply is likely to mitigate these effects we utilise repeated cross sections of micro data from several countries including the four major nordic countries available from the luxembourg income study lis to estimate labour supply elasticities both at the intensive and extensive margins the data span over four decades and include a large number of tax reform episodes with tax rate variation arising both from cross sectional and country level differences using these data we investigate whether micro and macro estimates differ in a systematic way the results do not provide strong support for the view that elasticities at the macro level would be higher than the corresponding micro elasticities

how can scandinavians tax so much american visitors to scandinavian countries are often puzzled by what they observe despite large income redistribution through distortionary taxes and transfers these are very high income countries they rank among the highest in the world in terms of income per capita as well as most other economic and social outcomes the economic and social success of scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare to form a basis for the discussion table 1 shows tax revenues and income tax rates in the three scandinavian countries denmark norway and sweden as compared to other european countries and the united states we see that the tax to gdp ratio and the tax rates on income are much higher in scandinavia than elsewhere the top marginal tax rates are about 60 70 percent in the scandinavian countries as opposed to only 43 percent in the united states the contrast is even more striking when considering the so called participation tax rate which is the effective average tax rate on labor force participation when accounting for the distortions due to income taxes payroll taxes consumption taxes and means tested transfers this tax rate is around 80 percent in the scandinavian countries implying that an average worker entering employment will be able to increase consumption by only 20 percent of earned income due to the combined effect of higher taxes and lower transfers by contrast the average worker in the united states gets to keep 63 percent of earnings when accounting for the full effect of the tax and

the integration of child tax credits and welfare evidence from the national child benefit program abstract in 1998 the canadian government introduced a new child tax credit the innovation in the program was its integration with social assistance welfare some provinces agreed to subtract the new federally paid benefits from provincially paid social assistance partially lowering the welfare wall other provinces did not integrate benefits providing a quasi experimental framework for estimation we find large changes in social assistance take up and employment in provinces that provided the labour market incentives to do so in our sample the integration of benefits can account for between 19 and 27 of the decline in social assistance receipt between 1997 and 2000

the revenue effects of the kennedy and reagan tax cuts some time series estimates univariate time series models are estimated for sample periods ending with the enactment of major tax reductions in 1964 and 1981 these models are used to forecast government revenue for the period following the tax cut and the pattern of forecast errors is examined unforecast revenue is negative and large relative to its standard error following the 1981 tax cuts but is close to zero following the 1964 cuts this disparity occurs because national output behaved differently in the two cases suggesting that short run movements in output are dominated by factors other than tax rate changes

sweden s laffer curve taxation and the unobserved economy recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance attention is focused on the public finance implications by developing a simple macromodel from which it is possible to derive a laffer curve the model reveals that the shape and position of the laffer curve depend upon the strength of supply side effects the progressivity of the tax system and the size of the unobserved economy using alternative parameterizations of each of these effects it is possible to obtain rough empirical estimates of the laffer curve for sweden i introduction supply side economics the laffer curve and the unobserved economy are subjects which have captured the interest of economists in their effort to understand and design cures for the growing macroeconomic and public finance malaise which appears to be affecting many of the world s most developed economies high rates of unemployment and inflation combined with slower rates of real growth and ever widening government deficits have focused economists attention on the interrelated issues of macroeconomic stabilization and public finance policy the questions raised by the supply side laffer curve and unobserved economy literature focus on the effects of tax rates on economic performance and the ability of governments to sustain the ambitious social welfare programs established in the past decade while there is much controversy about what the laffer curve looks like and where various economies are on their curves it is generally accepted that the dependence of tax revenues on tax rates is too oversimplified in

public finance solutions to the european unemployment problem public finance solutions a tax shift away from low paid labour may fight unemployment unemployment in europe is heavily concentrated among low skilled workers it has therefore been suggested that structural unemployment could be reduced by shifting the tax burden away from low skilled labour and away from the production of consumer services which are intensive in the use of such labour this paper finds that a tax shift away from low paid labour may raise aggregate employment and welfare but only if wage formation is sufficiently responsive to changing tax incentives the analysis also suggests that non negligible employment and welfare gains could be reaped by offering tax concessions or subsidies to those parts of the consumer service sector which compete most directly with low productivity home production and with underground economic activity peter birch sorensen

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

tax evasion and the demand for currency in norway and sweden is there a hidden relationship variables associated with the level of hidden economic activity are examined in terms of their effects on the demand for currency in norway and sweden aggregate time series of marginal tax rates are compiled for this purpose no such effects are evident for norway while in the case of sweden the demand for currency was found to be significantly related to marginal tax rates these estimates are then used as a basis for deriving an estimate of the size of the hidden economy in sweden an analysis of the assumptions underlying this procedure shows that the uncertainty involved in applying the currency approach to measuring the size of the hidden economy is so great as to make it hazardous to rely on such estimates

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs