supply side interventions and redistribution we evaluate the eect on welfare of shifting the burden of capi tal income taxes to labor taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates we calibrate and simu late the economy we nd that lowering capital taxes has two eects i it increases e ciency in terms of aggregate production and ii it redistributes wealth in favor of those agents with a low wage wealth ratio when the parameters of the model are calibrated to match the distribution of income in terms of the wage wealth ratio the redis tributive eect dominates and agents with a high wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated

credible public policy abstract credible public policy is defined in a way that incorporates competitive equilibrium behavior for households and subgame perfect nash equilibrium behavior for the government it is shown that the set of all equilibrium outcome paths for credible policies can be constructed by using arguments analogous to those of abreu 1988 for repeated games the results are then extended to systems with state variables simple models of monetary policy and capital taxation are studied by way of example

getting ahead of the joneses when equality increases conspicuous consumption among bottom tier consumers it is widely believed that increasing the equality of material possessions or income in a social group should lead people at the bottom of the distribution to consume less and save more however this prediction and its causal mechanism have never been studied experimentally five studies show that greater equality increases the satisfaction of those in the lowest tier of the distribution because it reduces the possession gap between what they have and what others have however greater equality also increases the position gains derived from status enhancing consumption since it allows low tier consumers to get ahead of the higher proportion of consumers clustered in the middle tiers as a result greater equality reduces consumption when consumers focus on the narrower possession gap but it increases consumption when they focus on the greater position gains i e when consumption is conspicuous social competition goals are primed and the environment is competitive

does price elasticity vary with economic growth a cross category analysis abstract how does price sensitivity change with the macroeconomic environment the authors explore this question by measuring price elasticity using household level data across 19 grocery categories over 24 quarters for each category they estimate a separate random coefficients logit model with quarter specific price response parameters and control functions to address endogeneity this specification yields a novel set of 456 elasticities across categories and time that are generated using the same method and therefore can be directly compared on average price sensitivity is countercyclical it rises when the macroeconomy weakens however substantial variation exists and a handful of categories exhibit procyclical price sensitivity the authors show that the relationship between price sensitivity and macroeconomic growth correlates strongly with the average level of price sensitivity in a category they examine several explanations for this result and conclude that a category s share of wallet is th

tax smoothing with stochastic interest rates a reassessment of clinton s fiscal legacy the return to sound fiscal policy after the high budget deficits of the 1980s and early 1990s has been hailed by many as the clinton administration s most important achievement we evaluate post war u s fiscal policy using a generalized tax smoothing model that allows for stochastic interest rates and growth rates we show that contrary to conventional wisdom the evolution of the u s debt gdp ratio during the 1980s was remarkably consistent with the tax smoothing paradigm in fact a more substantial departure occurred during the late 1990s when the debt gdp ratio fell more rapidly than predicted by optimal tax smoothing

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

strategic behaviour and the rules for international taxation of capital this paper examines the welfare of a capital exporting or source country and a capital importing or host country under tax credit and tax deduction systems for the international taxation of capital because the two tax systems may create quite different strategic incentives for the countries the authors compare the equilibria in the tax setting game played by the two countries under each system they find that the tax credits system introduces an antitrade bias into the equilibrium contrary to initial impressions and that both capital exporting and capital importing countries will prefer the tax deductions scheme to tax credits copyright 1989 by royal economic society

working wives and expenditure on services the major focus of this research is the relationship between a wife s employment and expenditure on time saving services multiple regression analysis of data from the 1972 1973 consumer expenditure survey indicates that two measures of the extent of a wife s participation in the labor force were influential in determining monetary outlay on services that are expected to be sensitive to the value of time other factors such as family income education and stage of the family life cycle also exert an impact on expenditure findings indicate that family expenditure on services is a complex process influenced by many factors besides a wife s employment

optimal taxation and debt with uninsurable risks to human capital accumulation we consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt we show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt we also assess the quantitative importance of these findings and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion jel d52 h21 h24 h25 h63 j24 human capital is an important component of wealth both at the individual and aggregate level and its role has been investigated in various fields in economics in public finance jones manuelli and rossi 1997 show that the zero capital tax result of chamley 1986 and judd 1985 1 can be strengthened if human capital accumulation is explicitly taken into account specifically they demonstrate that in a deterministic economy with human capital accumulation in the long run not only capital but also labor income taxes should be zero hence the government must accumulate wealth that is public debt be negative to finance its expenditure

how economic contractions and expansions affect expenditure patterns in this study we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion the common assumption is that a household s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions expansions would simply be due to changes in the consumption budget standard economic models translate these budgetary effects into lateral movements along a set of fixed engel curves which relate category expenditure shares to total expenditures we propose and test a conceptual framework based on the notion of relative consumption which prescribes that for any given total consumption budget expenditure shares for positional goods services will decrease during a recession while shares for nonpositional goods services will increase i e shifting the entire engel curve upward or downward depending on the nature of the expenditure category and the economic conditions

are positional concerns stronger in some domains than in others for more than one hundred years economists have discussed the concept of positional goods that the utility conferred by many perhaps even most goods depends not only on the amount the individual consumes but also on the amount others consume e g thorstein veblen 1899 james duesenberry 1949 john k galbraith 1958 robert frank 1985 while economic interest in positional goods is increasing e g mark pingle and mike mitchell 2002 kenneth arrow et al 2004 ed hopkins and tatiana kornienko 2004 the literature remains largely theoretical rather than empirical if status concerns affect all items in the utility function equally leisure as well as goods the positional effect would operate like a lump sum tax reducing well being without changing the allocation of time or money arrow et al 2004 however if positional concerns are stronger for some things than for others then in order to understand how people can become better off in well being not simply in wealth we must investigate how interpersonal competition interacts with material gains frank 1997 evidence about what goods are more positional than others is essential for correct policy recommendations gregory besharov 2002 but little is actually known about the relative positional rankings of items in the typical consumer s utility function four hypotheses proposed in the literature are

the bottom dollar effect the influence of spending to zero on pain of payment and satisfaction spending that exhausts a budget is shown to decrease satisfaction with purchased products relative to spending when resources remain in the budget six studies including those in which participants earn and spend real resources and evaluate real products explore this bottom dollar effect this research contributes to prior mental accounting research regarding how costs influence decision making e g bundling coupling sunk costs and to the satisfaction literature supporting the role of pain of payment in this process we show that the bottom dollar effect increases as effort required to earn budgetary resources increases decreases in the presence of windfall gains and decreases when there is less time between budget exhaustion and replenishment mediation analyses further demonstrate the role of payment pain in the bottom dollar effect implications are discussed in the context of behavioral research marketing promotions management and public policy

a test of conspicuous consumption visibility and income elasticities abstract this paper shows that consistent with a signaling by consuming model a la veblen income elasticities can be predicted from the visibility of consumer expenditures we outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not we then develop a survey based measure of expenditure visibility ranking different expenditures by how noticeable they are to others finally we show that our visibility measure predicts up to one third of the observed variation in elasticities across consumption categories in u s data

an analysis of energy consumption patterns by stage of family life cycle the author examines energy consumption by stage of family life cycle while controlling for income and number of family members in the labor force conservation and public policy implications are drawn

taxation of mobile factors as insurance under uncertainty this paper considers the effects of the taxation of mobile factors i e capital under uncertainty the wages earned by residents of a jurisdiction are uncertain due to random shocks since the uncertain wages in a jurisdiction depend on the amount of mobile capital employed in the jurisdiction and since taxation alters the quantity of capital employed taxation affects the riskiness of uncertain wages in particular the taxation of capital moderates the fluctuation of uncertain wages thereby providing insurance for this reason jurisdictions use distortionary capital taxation even if lump sum taxation is available in addition this insurance effect counteracts the tendency toward too low tax rates on capital arising from tax competition and possibly improves the efficiency of tax competition

optimal fiscal policy with recursive preferences i study the implications of recursive utility a popular preference specification in macro finance for the design of optimal fiscal policy standard ramsey tax smoothing prescriptions are substantially altered the planner over insures by taxing less in bad times and more in good times mitigating the effects of shocks at the intertemporal margin there is a novel incentive for introducing distortions that can lead to an ex ante capital subsidy overall optimal policy calls for a much stronger use of debt returns as a fiscal absorber leading to the conclusion that actual fiscal policy is even worse than we thought

marketing budget allocation across countries the role of international business cycles a key conundrum facing organizations is how to adjust marketing budgets in response to the business cycle while most firms use procyclical spending spending less during economic contractions academic studies often recommend countercyclical spending spending more during contractions which begs the following question what is the right thing to do the spending problem is compounded further when demand is not just driven by one country s business cycle but by the nonsynchronized business cycles of multiple countries as is the case for tourism marketing aiming to attract tourists originating from different countries we derive insights into the best way to allocate marketing budgets across countries under varying economic conditions we show that the allocation decisions are driven by the procyclical versus countercyclical nature of three factors unit sales marketing effectiveness and per unit profit contribution to study how unit sales and marketing effectiveness respond to the business cycle

the law of one price in international commodity markets a reformulation and some formal tests abstract we report formal tests of whether the law of one price lop holds in the long and in the short run for commodities traded in orgnized markets we formalize the distinction between short and long run by introducing lagged price adjustments also we introduce expectations explicitly tests support the long run lop but they reject the short rn lop the long run lop holds better for future prices than for spot prices on average 90 per cent of the deviation from lop is eliminated within 10 weeks but this ranges from 1 to 120 weeks

spot and futures prices and the law of one price the law of one price lop is tested for narrowly defined commodities traded in futures markets in different countries during the period 1973 80 although the lop holds as an average tendency for most of the commodities there are instances of large riskless arbitrage returns before transactions costs deviations from the lop tend to be commodity specific rather than due to a common external factor and they tend to be smaller the longer the maturity of the futures contract in this paper we examine how well the law of one price lop holds for commodities traded internationally the answer to this question is important for two reasons the first is that in most modern theories of exchange rates price arbitrage for at least some goods is a necessary condition to determine the level of exchange rates but recent empirical research on the behavior of various price indices casts doubt on the empirical validity of the lop across countries for even the most disaggregated indices if it is not possible to identify any commodities for which the lop works satisfactorily then models incorporating the lop will not provide an adequate description of exchange rates the second reason for studying individual commodities is to gain information on the efficiency and the degree of integration of international commodity markets in efficient markets international commodity arbitrage implies that for a standard commodity prices in two markets expressed in a common currency will not differ but for transport costs

income and wealth effects on private label demand evidence from the great recession we measure the causal effects of income and wealth on the demand for private label products prior research suggests that these effects are large and in particular that private label demand rises during recessions our empirical analysis is based on a comprehensive household level transactions database matched with price information from store level scanner data and wealth data based on local house value indices the great recession provides a key source of the variation in our data showing a large and geographically diverse impact on household incomes over time we estimate income and wealth effects using within variation of income at the household level and wealth at the zip code level our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization we establish a precisely measured negative effect of income on private label shares the effect of wealth is negative but not precisely measured however the estimated effect sizes

a critique of variance bounds tests for monetary exchange rate models note the monetary approach to exchange rate determination attributes the observed volatility of floating rates to revisions of expectations about current and future disturbances that affect the supply and demand conditions in the money market see for example frenkel and mussa 1980 a number of recent studies have proposed and implemented variance bounds tests of monetary exchange rate models along the lines of bond price and stock price volatility tests pioneered by leroy and porter 1981 shiller 1979 1981 and singleton 1980 huang 1981 presents evidence apparently demonstrating that some exchange rates are more volatile than a simple monetary model based on the assumptions of purchasing power parity and uncovered interest parity can rationalize meese and singleton 1983 derive but do not test the variance bounds implied by a number of monetary models vander kraats and booth 1983 henceforth referred to as v b implement volatility tests for three monetary models they conclude that only a variant of the sticky price model developed by dornbusch 1976 can potentially explain under certain rather implausible assumptions about parameter values the observed volatility of the exchange rates included in their sample in the literature this evidence of excess volatility of floating rates is considered damaging to the monetary approach and or to the rational expectations hypothesis for example in his recent survey of the literature richard levich remarks that on the basis of huang s results it follows that either the market is inefficient or that the rational expectations monetary model is incorrect or both levich 1985 p 994 the primary purpose of the present paper is to point out that the excess volatility evidence presented by huang and by ai b arises from a calculation error namely the value they assign to the interest semielasticity of money demand may be appropriate for a study using annual time series but is inappropriate for their monthly data once this error is corrected their exchange rate series no longer violate the variance bounds they test

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

time consistent control in non linear models abstract the paper shows how to use optimal control to compute optimal time consistent markovian government policies in nonlinear dynamic general equilibrium models it extends cohen and michel s 1988 results for the linear quadratic case the method involves replacing private agents costate variables with flexible functions of current state variables in the government s maximization problem the functions hold in equilibrium to an arbitrarily close approximation they can be found numerically by perturbation or projection methods a stochastic model of optimal public spending illustrates the technique

taxation of asset income in the presence of a world securities market abstract this paper examines a capm model of world security prices in which governments recognize their ability to influence international security prices via their tax treatment of foreign and domestic investors in this model governments have the incentive to set tax rates such that investors tend to specialize in domestic securities and to restrict net capital flows between countries each country does this to increase the utility of domestic residents taking as given the tax policies of other governments but the net outcome is a reduction in world efficiency and likely a reduction in the utility of all investors

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

is more always better a survey on positional concerns abstract we use survey data to provide some empirical information about concerns regarding relative standing respondents chose between a world where they have more of a good than others and one where everyone s endowment of the good is higher but the respondent has less than others questions asked about education attractiveness and intelligence for one s child and oneself income vacation time approval and disapproval from a supervisor and papers to write half of the respondents preferred to have 50 less real income but high relative income concerns about position were strongest for attractiveness and supervisor s praise and weakest for vacation time

the output employment and interest rate effects of government consumption abstract we study the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model we show theoretically that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change we also show that in principle there can be an analog to the keynesian multiplier in the neoclassical growth model finally in an empirically plausible version of the model we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one our results provide counterexamples to existing claims in the literature

optimal fiscal policy in the neoclassical growth model revisited this paper studies optimal taxation in a version of the neoclassical growth model in which investment becomes productive within the period thereby making the supply of capital elastic in the short run because taxing capital is distortionary in the short run the government s ability desire to raise revenues through capital income taxation in the initial period or when the economy is hit with a bad shock is greatly curtailed our timing assumption also leads to a tractable ramsey problem without state contingent debt which can give rise to debt financed budget deficits during recessions

can capital income taxes survive in open economies optimal tax theory forecasts that small open economies should not tax capital income yet countries do tax capital income why the inconsistency this paper shows that use of the double taxation convention whereby governments credit taxes paid abroad against domestic taxes helps explain this inconsistency in particular capital income will be taxed if a dominant capital exporter acts as a stackelberg leader when setting its tax policy due to the convention other countries will then tax capital imports making it attractive for the dominant capital exporter to tax capital income without a dominant capital exporter however the model still forecasts no capital income taxes can taxation of capital income survive the increasing integration of world capital markets a number of recent papers suggest not diamond and mirrlees 1971 for example showed that a small open economy would not choose to tax the income generated by the physical capital located within the country this is because production would occur efficiently under an optimal tax system which requires that domestic investments earn the rate of return available on the world capital market in principle a country might still attempt to tax income earned on the savings of its residents however in practice income from savings invested outside the country is virtually impossible for a government to monitor individuals therefore can evade tax on such savings with very little risk as razin and sadka 1989 show such capital flight in theory eliminates any possibility of a tax on savings investors will simply transfer their funds abroad to avoid taxation yet virtually all countries do in fact tax the capital income earned by corporations and individuals located within their borders how can the theoretical forecast of no capital income taxation be reconciled with this simple observation it is difficult to use existing models with any confidence to analyze the implications of changes in capital income tax rates if these same models forecast that countries should never tax capital income

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

markov perfect capital and labor taxes abstract this paper analyzes the markov perfect equilibrium of an economy were a benevolent government that lacks the ability to commit to future policy choices uses taxes on capital and labor income to finance the provision of a public good the main finding is that the government taxes capital and subsidizes labor so that only the dynamic inefficiency of future capital taxes remains if agents preference for the public good is sufficiently high then capital is confiscated setting bounds on taxes alleviates the dynamic inefficiency inherent in capital taxation but some implementations carry a high welfare cost allowing for endogenous capital utilization makes the current capital tax distortionary and implies capital and labor tax rates that are relatively close to those measured for the u s economy

the budget contraction effect how contracting budgets lead to less varied choice how do consumers adjust their spending when their budget changes a common view is that the allocation of one s current budget should not depend on previous budget allocations contrary to this the authors find that when the budget contracts to a particular level consumers select less variety as measured by the number of different items with some of the budget allocated to them than when their budget expands to that same level this budget contraction effect stems from a reduction in variety under the contracting budget not from variety expansion under the expanding budget evidence from five experiments indicates that the effect is driven by a desire to avoid feelings of loss associated with spreading allocation cuts relative to reference quantities from previous allocations across many items

optimal fiscal policy public capital and the productivity slowdown abstract this paper develops a quantitative theoretical model for the optimal provision of public capital we show that the ratio of public to private capital in the us economy since 1925 evolves in a manner that is broadly consistent with an optimal transition path derived from a simple growth model the model is used to quantify the conditions under which an increase in the stock of public capital is desirable and to investigate the degree to which nonoptimal fiscal policies can account for the us productivity slowdown

commodity prices exchange rates and their relative volatility abstract exchange rates are move volatile than rates implied by ppp using conventional price indexes this fact has led many to believe that exchange rates fluctuate more than is warranted by the variability in commodity prices and supports those who believe that fluctuations in exchange rates are excessive we show that exchange rates are less volatile than commodity prices in auction markets and less volatile than rates implied by the law of one price using such prices we also show that the behavior of exchange rates and the rates implied by these commodity prices is not consistent with the dornbusch overshooting model

household life cycle stages transitions and product expenditures data from the u s bureau of labor statistics consumer expenditure survey provide empirical verification of changes in household spending across a wide variety of products as households pass from one stage of the household life cycle to another three spending patterns emerged 1 a generalized inverted u pattern with spending rising sharply as households shift from young single to young married then remaining relatively high and falling sharply at the older married and or older single stages 2 generally increasing expenditures across stages until the last one or two stages and 3 generally decreasing expenditures across the life cycle expenditures are especially influenced by the presence of young children in the household

optimal taxes and the structure of preferences if optimal tax theory is to be the basis for calculating tax rates a close understanding is required of the relationship between the structure of preferences and the configuration of optimal tax rates otherwise hypotheses chosen by the econometrician for practical convenience may completely determine the results independently of measurement this paper explores the relationship between various types of separability particularly weak and implicit separability and optimal tax rates in the various models discussed in the literature the use of distance functions and the antonelli matrix provides a significant unification of previously disparate results in the final analysis optimal tax theory should be the basis for actual calculation of tax rates although recently there have been great advances in theoretical results and in our understanding of their meaning we are still some way from a working knowledge of whether uniform commodity taxes are in practice optimal or if not which commodities should be discriminated against present theoretical formulae do not yield clear cut results except in special cases and it has recently become clear that optimal rates depend crucially on the detailed structure of consumer preferences for example atkinson and stiglitz 3 show that with an optimal nonlinear income tax discriminatory commodity taxes are only necessary to the extent that individual commodities are not weakly separable from leisure more recently deaton 6 has shown that a similar result holds for what is perhaps the most interesting of the standard models that where there are many consumers and only a linear income tax and proportional commodity taxes are allowed in this case separability between goods and leisure together with linear engel curves for goods removes the need for differential commodity taxation in consequence nothing can be learned about commodity taxes from consumer demand studies in which commodity demands are explained conditionally on total expenditure and commodity prices and which assume linear engel curves all such studies require separability from leisure as a maintained hypothesis and so are consistent with uniform commodity taxation these results suggest that the prospects for meaningful empirical calculations of tax rates are bleak econometricians estimating commodity demand and labor supply equations make generous use of separability assumptions to enable estimation at all in consequence it is likely that empirically calculated tax rates based on econometric estimates of parameters will be determined in structure not by the measurements actually made but by arbitrary untested and even unconscious hypotheses chosen by the econometrician for practical convenience to remedy this situation and as a prelude to fruitful empirical work it is necessary to have a more explicit understanding of how preference structure affects optimal tax rates such is the object of this paper three different

determinants of household expenditures for services data from the bureau of labor statistics consumer expenditure surveys were used to investigate factors influencing household expenditures for services in the united states there were significant differences between families with full time and part time working wives in expenditures on child care food away from home and total services household production variables had a significant impact on service expenditures in most instances while the effects of other variables such as family life cycle education race and geographic location varied by service category and employment status of wife

should fiscal policy be different in a non competitive framework abstract this paper studies if imperfections in the labor market justify a different fiscal policy we present a dynamic general equilibrium model with a ramsey planner deciding about public spending labor taxes and debt two different labor market setups are considered first we assume a competitive labor market and then we introduce a union with monopoly power both models reach the same conclusion as regards to the cyclical properties of the optimal policy it is not optimal to implement a countercyclical fiscal policy we also find that government spending should be larger under perfect competition these main results arise both under complete and incomplete markets for the debt

conspicuous spending and the income distribution of social groups using south african household expenditure data we analyze how the spending of a household on visible goods such as jewelry and clothes depends on the distribution of income within its social group we find that this spending is positively correlated with the share of peers who possess a similar income level to the household what we dub the local income share moreover we find that the spending of a household on visible goods is positively correlated with the average income of peers that are poorer than this household we interpret this as evidence for cascade effects through which income changes among the poorest in the social group can trigger adjustments in the visible spending patterns of the wealthy in line with previous research charles et al 2009 we also find that visible spending of a household is negatively correlated with the average income of its social group we present a simple model of status competition based on hopkins and kornienko 2004 that synthesizes these effects and can account for our results jel d12 d31 o12

spending on daughters versus sons in economic recessions although parents often try not to favor one child we examine whether specific environmental factors might bias parents to favor children of one sex over the other this research draws on theory in evolutionary biology suggesting that investment in female versus male offspring depends on resource availability applying this to consumers a series of experiments show that poor economic conditions favor resource allocations to daughters over sons for example poor conditions led people to bequeath more assets to girls in their will and to choose girls to receive a us treasury bond and a beneficial extracurricular activity it is proposed that this happens because spending on children represents a reproductive investment and that boys and girls relative reproductive value varies with economic conditions supporting this account perceptions of which child will have more children statistically mediates the effect of economic conditions on preferences for girls consequently the effect is strengthened as a child approaches reproductive age and it is moderated by individual differences risk aversion and monogamy directly related to our theoretical model this research contributes to the consumer behavior literature by revealing how why and when environmental factors influence spending on girls versus boys

taxation of corporate capital income tax revenues versus tax distortions this paper shows that when uncertainty is taken into account explicitly taxation of corporate income can leave corporate investment incentives and individual savings incentives basically unaffected in spite of the sizable tax revenues collected in some plausible situations such taxes can increase efficiency the explanation for these surprising results is that the government by taxing capital income absorbs a certain fraction of both the expected return and the uncertainty in the return while investors as a result receive a lower expected return they also bear less risk when they invest and these two effects are largely offsetting

on capital income tax policies under uncertainty this paper investigates corporate income and dividend taxation in a multi country world where production is subject to country specific productivity shocks singlecountry non cooperative tax policy is shown to imply a tax on foreign source dividends and a subsidy to domestic source dividends the optimal corporate tax may be negative if international portfolios are little diversified at the outset finally each country in a coordinating region should subsidize rather than tax domestic citizen s investment in equity in partner countries 1998 elsevier science b v all rights reserved

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

supply side reforms and learning dynamics this paper studies the nature the magnitude and the length of the transition after a capital tax cut the transition is analysed with adaptive learning under which agents do not need to adjust instantaneously to the change as with rational expectations re impulse response analysis reveals that the transition with learning is asymmetrically sensitive to the nature of the exogenous technological shock at the time of the reform if the reform coincides with a negative shock the transition to the new steady state is slow whereas if it coincides with a positive shock it is approximately the same as the one predicted by re the results imply that cutting capital income taxes before or during a recession may not be an effective means for short run fiscal stimulus

optimal fiscal policy with redistribution i study the optimal taxation oflabor and capital in a dynamic economy subject to government expenditure and technology shocks unlike representative agent ramsey models workers are heterogenous and lump sum taxation is not ruled out i consider two tax scenarios a linear taxation with a lump sum intercept and b nonlinear mirrleesian taxation when taxes are linear i derive a partial equivalence result with ramsey settings that provides a reinterpretation of such analyses i find conditions for perfect tax smoothing oflabor income taxes and zero capital taxation implications that contrast with ramsey are derived for public debt management for the nature of the time inconsistency problem and for the viability of replicating complete markets without state contingent bonds shifts in the distribution of skills provide a novel source for variations in tax rates for the nonlinear tax scenario i show that taxation based on income averages is optimal

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

desire to acquire powerlessness and compensatory consumption three experiments examine how power affects consumers spending propensities by integrating literatures suggesting that a powerlessness is aversive b status is one basis of power and c products can signal status the authors argue that low power fosters a desire to acquire products associated with status to compensate for lacking power supporting this compensatory hypothesis results show that low power increased consumers willingness to pay for auction items and consumers reservation prices in negotiations but only when products were status related the link between powerlessness and compensatory consumption has broad implications both for consumers health and well being and for understanding the psychological state of power

optimal taxation in a limited commitment economy this paper studies optimal ramsey taxation when risk sharing in private insurance markets is imperfect due to limited enforcement in a limited commitment economy there are externalities associated with capital and labor because individuals do not take into account that their labor and saving decisions aect aggregate supply wages

expenditure pattern differentials between one earner and dual earner households 1972 1973 and 1984 the impact of women s changing work roles on household expenditures by married couples is analyzed for 1972 1973 and 1984 utilizing data from the consumer expenditure survey cex one earner households with a non working wife nww are compared at the same level of after tax income to dual earner households in which the wife works part time pww and to those with wives working full time fww the analysis indicates that expenditure shares are fairly consistent among types of households over time in terms of wife s work status and income levels and that income is the most important determinant of expenditures

optimal tax rules in a dynamic stochastic economy with capital abstract this paper investigates optimal taxation in a disaggregated neoclassical growth model optimal tax rules for a government which must finance an exogenous stochastic stream of spending are investigated many locally optimal rules are found and two principles which provide useful guidance into interpreting them are described these principles state that high steady state investment and small investment volatility are desired a persistent income tax policy suggested by judd 1989 is found to be among the best policies although some policies with complicated dynamic implications have similar welfare levels because of its simplicity the persistent income tax rule is recommended

taxation and uncertainty while taxes may be certain u s tax policy has certainly not been furthermore intrinsic economic risk makes investment decisions risky therefore a serious examination of the effects of tax policy on dynamic economic behavior should consider both sources of uncertainty this paper presents a simple theoretical and computational model that can analyze both intrinsic risk and uncertain taxation furthermore it will be clear that these techniques will be useful for examining general problems of taxation and risk when studying the impact of past and or proposed tax changes one of two extreme assumptions are usually made either agents are perfectly aware of future tax policy a perfect foresight assumption or they always believe that no change will ever occur a myopic foresight assumption these two assumptions yield substantially different views of recent tax experience as alan auerbach and james hines 1987 demonstrate in a partial equilibrium context both are clearly wrong the myopic specification assumes that individuals believe at each point in time that the current tax law will surely continue forever even after they have been hit repeatedly with tax changes on the other hand it is absurd to think that in say 1977 a significant number of individuals perfectly knew the various tax changes that would occur during the following decade this paper analyzes a dynamic general equilibrium model wherein taxpayers understand the uncertainty in tax policy when making their deci

interest costs and the optimal maturity structure of government debt the government faces a trade off between the benefits of tax smoothing and an associated increase in expected interest costs when choosing its optimal debt portfolio the article solves for optimal policies in an incomplete markets model where the government uses two debt instruments long term and short term non contingent nominal bonds in this setup the basic prescription is to borrow long and invest short even though equilibrium expected interest costs are higher on long term debt the resulting welfare gains are close to what the government could achieve with complete markets significant welfare gains are possible even in the presence of leverage constraints

optimal fiscal policy in a stochastic growth model although most neoclassical growth models focus on competitive equilibria which are pareto optimal and ignore the role of government recent works by romer 28 29 judd 20 baxter and king s and bizer and judd 7 have shown that government can be introduced into and suboptimal equilibria can be studied in these models as well their studies however are positive analyses of the effects of fiscal policy in competitive equilibria the purpose of this paper is to apply ramsey s 27 theory of optimal taxation to the normative study of fiscal policy in a stocastic growth model ramsey studied a static representative consumer economy with many goods in his formulation a government consumes a fixed amount of these goods which it purchases at market prices and finances by levying flat rate excise taxes prices and quantities are determined in a competitive equilibrium the government is benevolent and its objective is to choose the optimal tax rates to maximize the representative consumer s utility a number of economists among them kydland and prescott 23 barro 3 turnovsky and brock 31 and lucas and stockey 26 have noted that ramsey s formulation can be applied to dynamic economies with uncertainty if one reinterprets the goods in static problems as dated state contingent goods in this framework a fiscal policy is a rule which specifies state contingent tax rates and the amount of public debt issue in each date the optimal fiscal policy is defined as the one which leads to a quantity