time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

investment financing decisions and tax policy mists have analyzed the effects of taxes on capital spending most studies assume that firms respond to prices set in centralized securities markets such as market interest rates of tobin s q and firms undertake all profitable investment projects firms choose the mix or finance among internal funds debt and new equity independently the availability of finance does not limit investment the implications for tax policy are clear the marginal tax rate on returns from a new project matters for investment not the firm s average tax burden on returns from its investments in place for firms that face imperfect markets for

feed in tariffs for promotion of energy storage technologies faster market integration of new energy technologies can be achieved by use of proper support mechanisms that will create favourable market conditions for such technologies the best examples of support mechanisms presented in the last two decades have been the various schemes for the promotion of renewable energy sources res in the eu the most successful supporting schemes are feed in tariffs which have significantly increased utilisation of renewable energy sources in germany spain portugal denmark and many other eu countries despite the successful feed in tariffs for res promotion in many cases res penetration is limited by power system requirements linked to the intermittency of res sources and technical capabilities of grids these problems can be solved by implementation of energy storage technologies like reversible or pumped hydro hydrogen batteries or any other technology that can be used for balancing or dump load in this paper feed in tariffs for various energy storage technologies are discussed along with a proposal for their application in more appropriate regions after successful application on islands and outermost regions energy storage tariffs should be also applied in mainland power systems increased use of energy storage could optimise existing assets on the market

capital taxation and government debt policy with public discounting abstract this paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty the government has access to linear taxes on capital and labor and to non state contingent bonds government impatience generates positive and empirically realistic long run levels of both capital taxes and public debt prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries alongside other statistics the paper then presents econometric evidence that countries with higher political instability used as an approximation of unobservable public discount rates have both higher capital taxes and debt

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

how should control theory be used to calculate a time consistent government policy we study different solutions to a simple one dimensional linear quadratic game with a large number of private agents and a government a time consistent solution is defined as a solution to the hamilton jacobi bellman equation i e as a policy for which the government has noprecommitment capability this solution is compared to a policy where the government has an instantaneous pre commitment i e an equilibrium in which the government has a period by period leadership in both cases we show how control theory should be applied to calculate the equilibrium and how to relate these equilibria to the differential game literature

making the case for grid connected photovoltaics in brazil abstract in the developed world grid connected photovoltaics pvs are the fastest growing segment of the energy market from 1999 to 2009 this industry had a 42 compound annual growth rate from 2009 to 2013 it is expected to grow to 45 and in 2013 the achievement of grid parity when the cost of solar electricity becomes competitive with conventional retail including taxes and charges grid supplied electricity is expected in many places worldwide grid connected pv is usually perceived as an energy technology for developed countries whereas isolated stand alone pv is considered as more suited for applications in developing nations where so many individuals still lack access to electricity this rationale is based on the still high costs of pv when compared with conventional electricity we make the case for grid connected pv generation in brazil showing that with the declining costs of pv and the rising prices of conventional electricity urban populations in brazil will also enjoy grid parity in the present decade we argue that governments in developing nations should act promptly and establish the mandates and necessary conditions for their energy industry to accumulate experience in grid connected pv and make the most of this benign technology in the near future

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

optimal fiscal and monetary policy with occasionally binding zero bound constraints abstract this paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound zlb constraint in a stochastic new keynesian economy in the baseline model calibrated to match key features of the u s economy it is optimal for the government to increase its spending when at the zlb in the stochastic environment by about 60 percent more than it would in the deterministic environment the presence of uncertainty creates a unique time consistency problem if the steady state is inefficient although access to government spending policy increases welfare in the face of a large deflationary shock it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the zlb

time consistent consumption taxation abstract we characterise optimal tax policies when the government has access to consumption taxation and cannot credibly commit to future policies we consider a neoclassical economy where factor income taxation is distortionary within the period due to endogenous labour and capital utilisation and non tax deductibility of depreciation contrary to the case where only labour and capital income are taxed the optimal time consistent policies with consumption taxation are remarkably similar to their ramsey counterparts the welfare gains from commitment are negligible while they are substantial without consumption taxation further the welfare gains from taxing consumption are much higher without commitment

energy demand in ghana a disaggregated analysis this paper presents a comprehensive analysis of energy demand in ghana by estimating demand functions for key disaggregated energy components including gasoline diesel liquefied petroleum gas lpg kerosene biomass residual fuel oil rfo and electricity our results show that energy prices income urbanization and economic structure are significant demand drivers of the different energy types in ghana with varying estimated elasticities further there is evidence of high degree of inter fuel substitution in energy demand in ghana particularly from gasoline diesel and kerosene towards lpg consumption we recommend among different policy options a customization of energy price subsidization policies especially on lpg to reduce the unintended beneficiary dilemma or spillover effect of current government policy other policies such as intensification of energy conservation programs and market entry of independent power trading companies to enhance energy service delivery through competition are also discussed

the politics of fdi expropriation i examine the role of political instability and fractionalization as potential explanations for the lack of capital flows from rich countries to poor countries i e the lucas paradox using panel data from 1984 to 2014 i document that i developed countries exhibit larger inflows of foreign direct investment fdi ii countries subject to high investment risk ir receive low fdi inflows and iii ir is higher in fractionalized and politically unstable economies these findings suggest a negative relationship between political instability and fdi through the ir channel i inspect the theoretical mechanism using a dynamic political economy model of redistribution wherein policymakers can expropriate resources from foreign investors the proceeds are used to finance group specific transfers to domestic workers but hinder economic growth by discouraging fdi i show that the political equilibrium exhibits overexpropriation and underinvestment

optimal taxes without commitment abstract in the problem of optimal taxation in an economy with labor and capital the optimal solution when the government can commit to a sequence of tax rates entails that the tax on capital tends to zero in the limit with all the tax burden on labor it is well known however that this solution is time inconsistent so if the commitment power is not perfect this second best tax plan will not be sustainable we model explicitly the trade off between the cost of revising the tax plan and the benefit of the revision as a result when commitment is not possible both the limit tax rate and the steady state capital are different from their levels in the second best solution limit taxes on capital may be strictly positive but it may also be the case that the only sustainable plan has subsidies to capital the subsidies induce an overaccumulation of capital which becomes a commitment device against revisions of the tax plan journal of economic literature classification numbers h21 c73

the reliability of aggregate energy demand functions an application of statistical specification error tests abstract the paper examines the unbiasedness and efficiency of various energy elasticity estimates by means of statistical specification error tests the model selection procedure is applied to energy consumption data of eight industrialized countries it is found that models which describe dynamic behaviour by including the lagged dependent variable among the regressors are most frequently accepted and that long term income effects are important for all countries strong differences among countries prevail concerning the appropriateness of including a time trend elasticities derived from accepted models differ considerably among countries

short and long run elasticities in energy demand a cointegration approach abstract short and long run energy demand elasticities are estimated on danish annual data for 1948 1990 energy consumption the real price of energy and real gdp appear to be non stationary variables cointegration and error correction methods are therefore applied all estimated parameters have the expected signs and magnitudes and no evidence is found of a structural break in energy demand caused by the increases in real energy prices since 1973 74

the influence of distributed generation penetration levels on energy markets planning of national energy policies brings new dilemmas with the introduction of distributed generators dg economic theory suggests that a perfectly competitive market would lead to efficient pricing in the absence of competition regulators play a fundamental role in attracting reasonably priced finance in order to maintain refurbish and increase the infrastructure and provide services at a reasonable cost energy market price equilibrium is mainly dependent on suppliers generators energy sources and demand represented by conventional utility grid users its behavior is similar to that of other commodities as generation becomes less centralized with the increasing economic viability of renewable energy sources new suppliers are being connected to the grid such evolution means the transition from a monopolistic market to a broader and more open environment with an increasing number of competitors we make use of variational inequalities to model a hypothetical dg market in different scenarios from monopoly to oligopoly to open market such an approach enables different equilibrium outcomes due to different dg penetration levels based on these findings we argue that energy policies for such markets must be developed according to each specific stage of the grid s lifecycle we show how energy policies and market regulations may affect such a transition which may be catastrophic if not managed properly and which is dependent on the energy mix

high penetration wind generation impacts on spot prices in the australian national electricity market this paper explores wind power integration issues for the south australian sa region of the australian national electricity market nem by assessing the interaction of regional wind generation electricity demand and spot prices over 2 recent years of market operation sa s wind energy penetration has recently surpassed 20 and it has only a limited interconnection with other regions of the nem as such it represents an interesting example of high wind penetration in a gross wholesale pool market electricity industry our findings suggest that while electricity demand continues to have the greatest influence on spot prices in sa wind generation levels have become a significant secondary influence and there is an inverse relationship between wind generation and price no clear relationship between wind generation and demand has been identified although some periods of extremely high demand may coincide with lower wind generation periods of high wind output are associated with generally lower market prices and also appear to contribute to extreme negative price events the results highlight the importance of electricity market and renewable policy design in facilitating economically efficient high wind penetrations

the structure of residential energy demand in greece abstract this paper attempts to shed light on the determinants of residential energy demand in greece and to compare it with some other oecd countries from the estimates of the short run and long run elasticities of energy demand for the period 1965 1999 we find that residential energy demand appears to be price inelastic also we do not find evidence of a structural change probably because of the low efficiency of the energy sector we find however that the magnitude of the income elasticity varies substantially between greece and other oecd countries

economic performance and policies for grid connected residential solar photovoltaic systems in brazil abstract we analyze the economic competitiveness of grid connected distributed solar photovoltaic generation through small scale rooftop installations in five brazilian state capitals the locations represent a comprehensive set of the two essential parameters for the economic viability of pv solar irradiation and local electricity tariffs levelized electricity costs lec for pv generation and net present values npv for a specific pv system are presented the analysis comprises three different interest rate scenarios reflecting different conditions for capital acquisition to finance the generators subsidized mature market and country specific risk adjusted interest in the npv analysis revenue flow is modeled by the sale of pv electricity at current residential tariffs assuming net metering using subsidized interest rates the analysis shows that solar pv electricity is already competitive in brazil while in the country specific risk adjusted rate the declining but still high capital costs of pv make it economically unfeasible at a mature market interest rate pv competitiveness is largely dependent on the residential tariff economic competitiveness in this scenario is given for locations with high residential tariffs we demonstrate the high potential of distributed generation with photovoltaic installations in brazil and show that under certain conditions grid connected pv can be economically competitive in a developing country

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

optimal fiscal policy in a business cycle model this paper develops the quantitative implications of optimal fiscal policy in a business cycle model in a stationary equilibrium the ex ante tax rate on capital income is approximately zero there is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation within this class the optimal ex post capital tax rates can range from close to independently and identically distributed to close to a random walk the tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks thus there is no presumption that optimal labor tax rates follow a random walk most of the welfare gains realized by switching from a tax system like that of the united states to the ramsey system come from an initial period of high taxation on capital income

efficient pricing and investment in electricity markets with intermittent resources facing growing technological and environmental challenges the electricity industry needs effective pricing mechanism to promote efficient risk management and investment decisions in a restructured electricity market with competitive wholesale prices and traditionally regulated retail rates however there are technical and institutional barriers that prevent dynamic pricing with price responsive demand in regions with limited energy storage capacity intermittent renewable resources present special challenges this could adversely affect the effectiveness of public policies causing inefficient investments in energy technologies in this paper we present an updated economic model of pricing and investment in restructured electricity market and use the model in a simulation study for an initial assessment of renewable energy strategy and alternative pricing mechanisms a key objective of the study is to shed light on the policy issues so that effective decisions can be made to improve efficiency

electricity demand analysis using cointegration and arima modelling a case study of turkey in the early 2000s the republic of turkey has initiated an ambitious reform program in her electricity market which requires privatization liberalization as well as a radical restructuring the most controversial reason behind or justification for recent reforms has been the rapid electricity demand growth that is to say the whole reform process has been a part of the endeavors to avoid the so called energy crisis using cointegration analysis and autoregressive integrated moving average arima modelling the present article focuses on this issue by both providing an electricity demand estimation and forecast and comparing the results with official projections the study concludes first that consumers respond to price and income changes is quite limited and therefore there is a need for economic regulation in turkish electricity market and second that the current official electricity demand projections highly overestimate the electricity demand which may endanger the development of both a coherent energy policy in general and a healthy electricity market in particular

stock watson dynamic ols dols and error correction modelling approaches to estimating long and short run elasticities in a demand function new evidence and methodological implications from an application to the demand for coal in mainland china in this paper robust elasticity estimates of coal demand for china are derived using annual data 1953 92 in so doing we illustrate the use of a powerful yet practically convenient and recently developed modelling procedure devised by stock and watson known as dynamic ols dols who provide evidence based on monte carlo simulations of this estimator being superior in small samples compared to a number of alternative estimators as well as being able not only to accommodate higher orders of integration but also to account for possible simultaneity within regressors of a potential demand system furthermore cointegration and error correction methods are employed to derive short run price and income elasticities estimated results are quite robust not only in terms of statistical prowess but also in terms of economic intuition and indicate that over the long run both price and income elasticities are close to unity while short run price and income elasticities are less in absolute value than their long run counterparts there seems to be some divergence in short run parameters from a subsample analysis overall results seem to imply that for china coal consumption should remain relatively constant as future modernization strategies for economic development are pursued in addition the study has clear methodological implications for estimating the long and short run elasticities in a demand function in general and in a wide variety of fields in future applied research

time consistent public expenditures in this paper we study the optimal choice of public expenditures when there is no way of committing to future policy and reputational mechanisms are not operative this amounts to conflning our attention to markov equilibria the environment is a neoclassical growth model where consumers derive utility from a public good this environment gives rise to a dynamic game between successive governments and the private sector and this game is made interesting by the presence of a state variable the capital stock we characterize equilibria in terms of an intertemporal flrst order condition a generalized euler equation gee for the government and we use this condition both to gain insight into the nature of the equilibrium and as a basis for computation the gee reveals how the government optimally trades ofi tax wedges over time it also allows us to discuss in what sense a current government may be strategically in uencing future governments in their taxation decisions for a calibrated economy we flnd that when the tax base available to the government is capital income an inelastic source of funds at any moment in time the government still refrains from taxing at high rates in order to smooth distortions over time as a result the economy is far from the mix of public and private goods that would be optimal in a static context in return the savings distortion is not very severe and the capital stock is quite high

on energy coefficients and ratios abstract this paper examines the methodological issues of the debates surrounding the problem of measuring energy consumption and the use of the concept of energy coefficients it also investigates the brookes hypothesis of a development effect on energy consumption the results suggest that when energy consumption is appropriately measured the energy coefficients are very consistent and fall steadily from high values tending asymptotically to one

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

energy transition and path creation for natural gas in the brazilian electricity mix abstract emerging economies will account for more than 90 of net energy demand growth to 2035 although there is international consent about the need for reducing green house gas ghg emissions reduction targets have been left to governments responsibility such opening lead to different energy policies and approaches among countries specially comparing developing economies to developed ones technology development and new reserves found have set natural gas as the lead resource for transitioning energy mixes to lower carbon levels however hydropower has been the main source for the brazilian electricity grid and increasing dispatch of natural gas in fact increases ghg which has been the core of current brazilian energy policies we estimated future brazilian market shares of hydro thermal wind and nuclear power through historical data analysis of power dispatch and installed capacity the findings propose that current brazilian administration is creating a new technological path which will lead far from the desired ghg targets if actual growth rate of thermal power continues by the year 2022 thermal plants will be major suppliers of the brazilian electricity grid leaving hydro with the second largest market share furthermore we propose several approaches for increasing adoption of renewable distributed generation and the development of other market niches for natural gas in brazil as alternative paths

estimation of short run and long run elasticities of energy demand from panel data using shrinkage estimators this article discusses the problem of obtaining short run and long run elasticities of energy demand for each of 49 states in the united states using data for 21 years estimation using the time series data by each state gave several wrong signs for the coefficients estimation using pooled data was not valid because the hypothesis of homogeneity of the coefficients was rejected shrinkage estimators gave more reasonable results the article presents in a unified framework the classical empirical bayes and bayes approaches for deriving these estimators

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

sustainable plans and mutual default this paper presents a simple general equilibrium model of optimal taxation in which both private agents and the government can default on their debt as a benchmark we consider ramsey equilibria in which the government can precommit to its policies at the beginning of time but in which private agents can default we then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we adapt abreu s 1988 optimal trigger strategies to completely characterize the entire set of sustainable equilibria in particular we show that when there is sufficiently little discounting and government consumption fluctuates enough the ramsey allocations and policies in which the government never defaults can be supported by a sustainable equilibrium by way of an example we show that the larger the variance of government consumption the easier it is to support good outcomes we also show for moderate discount factors that in the best sustainable equilibrium tax rates are more volatile and debt is smaller than in the ramsey equilibrium

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

short and long run elasticities in us residential electricity demand a co integration approach abstract co integration techniques show promise in the analysis of short and long run effects of economic variables on energy use we use these techniques to develop an error correction model of annual us residential electricity demand we construct equipment stock indices and estimate the model for 1949 1993 our analysis suggests a structural shift in consumption during the 1960s we discuss reasons for this shift report the short and long run elasticities provide forecasts for 1994 1995 and compare the model s forecasts with other published forecasts

elasticities science or fiction abstract apart from discrepancies in statistical data series the most frequent source of inconsistencies among elasticity estimates is the model specification and the interpretation of empirical results this paper investigates this issue and in particular highlights the misconception that elasticities can scientifically and uniquely be determined by econometric techniques however it is common knowledge that econometric methods constitute a very good tool for analysing the past thus the main message of this exercise is that in the absence of complete specification there are important trends in the elasticities themselves such trends are very crucial and need to be interpreted if elasticities are to be used for forecasting purposes

the nexus between carbon emissions energy consumption and economic growth in middle east countries a panel data analysis abstract the environmental kuznets curve ekc hypothesis assumes that there is an inverted u shaped relationship between environmental degradation and income per capita in other words as a country grows it is assumed that its environmental quality improves in this study we aim to test the ekc hypothesis for 12 middle east countries during the period 1990 2008 by employing recently developed panel data methods our results provide evidence contrary to the ekc hypothesis we found evidence favorable to the u shaped ekc for 5 middle east countries whereas an inverted u shaped curve was identified for only 3 middle east countries furthermore there appear to be no causal links between income and co 2 emissions for the other 4 countries regarding the direction of causality there appears to be a unidirectional causality from economic growth to energy consumption in the short run in the long run however the unidirectional causality chain runs from energy consumption and economic growth to co 2 emissions we also suggest some crucial policy implications depending on these results

energy consumption and economic activity in industrialized economies a note abstract in industrialized countries the income elasticity of primary energy demand is not far off unity furthermore it can be argued that there is little use in distinguishing between short and long term income elasticities a long term income elasticity does not have a direct impact on energy demand and hence it is of doubtful use in energy demand projections via an aggregate oecd model it was estimated that the short term impact of prices on primary energy demand is about 0 15 while the long term impact is 0 43 but increasing over time

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

debt inflation and central bank independence abstract increasing the independence of a central bank from political influence although ex ante socially beneficial and initially successful in reducing inflation would ultimately fail to lower inflation permanently the smaller anticipated policy distortions implemented by a more independent central bank would induce the fiscal authority to decrease current distortions by increasing the deficit over time inflation would increase to accommodate a higher public debt by contrast imposing a strict inflation target would lower inflation permanently and insulate the primary deficit from political distortions

optimal ramsey taxation with endogenous risk aversion abstract in this paper we study optimal ramsey taxation under endogenous risk aversion formulation in an otherwise standard real business cycle economy we show that when the risk aversion coefficient co moves counter cyclically the canonical chamley judd chamley 1986 judd 1985 result does not hold true and the ramsey planner chooses a positive capital income tax rate in the long run we report that result is due to additional wedges both in the intratemporal and the intertemporal optimality condition of the representative household

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

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

inflation and central bank independence a meta regression analysis using 59 studies we perform a meta regression analysis of studies examining the relationship between inflation and central bank independence cbi the studies considered are very different with respect to the cbi indicator used the sample of countries and time periods covered model specification estimators used and publication outlet we conclude that there is a significant publication bias however we also find a significant genuine effect of cbi on inflation differences between studies are not caused by differences in cbi indicators used

imperfect information credit markets and unemployment this paper describes how imperfect information in both capital and labor markets can in a context of maximizing firms and perfectly flexible prices and wages give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles this abstract was borrowed from another version of this item

the energy demand elasticity in relation to gross domestic product a relevant indicator abstract the value of the ratio of energy consumption growth to economic growth forms the subject of strenuous debates particularly in france this article attempts to show by taking data over an extended period for the industrialized countries that one should treat with caution the values this indicator can have any resulting energy forecast would be fragile consequently one may say that it is the notion of the elasticity itself which is most often used improperly this indicator is too global and is useful only ex post

on the joint determination of fiscal and monetary policy abstract the conduct of fiscal and monetary policy absent commitment depends on the interaction between the objective of smoothing distortions intertemporally and a time consistency problem when net nominal government obligations are positive both fiscal and monetary policies are distortionary and the choice of debt depends on how the anticipated response in future monetary policy affects the current demand for money and bonds there exists a unique steady state with positive net nominal government obligations which is stable and time consistent for any initial level of debt the welfare loss due to lack of commitment is small

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

competitive models with keynesian features the notion of an equilibrium with quantity rationing has been with us for a long time in a rudimentary form it was found in all those early keynesian models which explained unemployment by positing a fixed money wage the advantage of the more recent disequilibrium theory models apart from ushering in a degree of rigour undreamt of in earlier days is that they explain how the firm comes to be off its supply curve with a fixed money wage but flexible prices the level of employment is determined by the marginal productof labour curve which is the firm s competitive demand for labour curve an increase in employment can only be obtained at the cost of a fall in the real wage much as the classical economists had insisted if there is quantityrationing in the goods market however an increase in demand resulting from increased government expenditure say will increase demand for labour without a change in the real wage and this initial increase in employment and income will have multiplier effects just as in the original keynesian stories while all prices remain fixed this is the economic importance of the innovation suggested by clower 1965 and developed by barro grossman 1971 benassy 1975 and grandmont laroque 1977 but the key assumption that prices are fixed or at least predetermined or determined exogenously to the model is also the weakest point of the theory it has two chief defects first there are too many equilibria for any arbitrarily given vector of prices there exists an equilibrium with quantity rationing without a theory to tell us how prices are determined the model has only weak predictive power second without a theory of price setting there is no explanation of how and when prices change and hence there is no way of saying in what sense a fix price equilibrium is an equilibrium whether these states are persistent or merely transitory is clearly crucial to the theory if the fixprice assumption is taken to mean as it often is that over a sufficiently short time period prices may be treated as approximately fixed then the theory runs the risk of being tautologous and not being taken seriously this sort of consideration appears to be what motivated oliver hart 1982 to take a rather different approach his starting point was the observation that the most important part of keynesian economics was the role it assigned to economic policy and not a particular model of the keynesian economy he therefore devised a model of imperfect competition which generated the traditional keynesian conclusions about the impact of economic policy without appealing to the fix price assumption for example under certain assumptions the government deficit multiplier is given by the usual formula 17

environmental regulation of households an empirical review of economic and psychological factors abstract the literature on sustainable consumption and environmental regulation of household behavior is dominated by conceptual and normative approaches as a result many suggestions lack a firm empirical basis to overcome this deficiency econometric studies in three areas of environmentally relevant activities of households are reviewed residential use of energy generation of solid waste and recycling and residential use of water next to price and income elasticities attention is devoted to individual socio economic features and psychological factors such as attitudes knowledge perceptions and values potential psychological determinants and related insights are further examined by discussing a range of representative and illustrative statistical psychological studies of environmental behavior one important general finding is that there are very few empirical studies that systematically combine socio economic and psychological determinants a range of insights for environmental policy is derived and research recommendations are offered

government policy in monetary economies i study how the specic details of a micro founded monetary economy aect the determination of government policy i consider three variants of the lagos wright monetary framework a benchmark were all markets are competitive a case which allows for nancial intermediaries and a case with trading frictions although intitutions frictions are shown to have a signicant structural impact in the determination of policy the calibrated articial economies are observationally equivalent in steady state the policy response to aggregate shocks is qualitatively similar in the variants considered however there are signicant quantitative dierences in the response of government policy to productivity shocks mainly due to the idiosyncratic behavior of money demand the variants with no trading frictions display the best t to u s post war data

financial market imperfections labour market imperfections and business cycles a greenwald stiglitz 1993a style rational expectations business cycle model is introduced in which uncorrelated productivity shocks or monetary shocks generate autocorrelated employment fluctuations due to financial constraints the propagation mechanism is carefully modelled because of capital market imperfections only standard debt contracts are traded firms labour demand changes in response to changes in their balance sheet position because of labour market imperfections efficiency wages employment and unemployment fluctuate in response to shifts in labour demand the virtue of the model is its simplicity despite the fact that unemployment is endogenous the dynamic behaviour of the model under rational expectations can be characterised analytically

relative wages efficiency wages and keynesian unemployment while modern economic theorists have produced a variety of explanations for the failure of wages to fall in the face of unemployment keynes emphasis on relative wages has not been reflected in most contemporary discussions this short paper suggests that relative wage theories in which workers productivity depends primarily on their relative wage provide the best available apparatus for understanding actual unemployment and its fluctuations such theories are very closely related to the efficiency wage theories that have received widespread attention in recent years this abstract was borrowed from another version of this item

public trust and government betrayal abstract this study presents a simple model of government reputation in which government type cannot be directly observed by households with the variation that government type rather than being permanent follows an exogenous markov process this formulation captures three characteristics of bad policy outcomes governments which betray public trust do so erratically public trust is regained only gradually after a betrayal and governments with recent betrayals betray with higher probability than other governments

tests for structural change in us oil consumption 1967 1982 abstract the purpose of this paper is to test us oil consumption for structural change over the period 1967 1982 a frequently used functional form is posited for total petroleum consumption as well as for gasoline distillate and residual fuel tests for abrupt change chow and gradual or conservation like change durbin brown evans and farley hinnich mcguire are employed at special break points 1973 embargo 1979 iranian crisis 1980 recession to check for abrupt changes and across years in general to detect gradual shifts both abrupt and gradual changes are found although the last five years may be the beginning of a new non changing period

demand elasticities in oecd dynamical aspects abstract four models with different lag structures are used to express final energy demand in oecd from 1960 1982 as a function of real gdp and average energy price the income and long run price elasticities are not significantly dependent on the model specification but the koyck lag scheme estimated in its distributed lag form is found to give the most satisfactory results the statistical properties of the data together with evidence of trends in the elasticities both suggest that the period of falling real prices prior to 1971 is not comparable to the present period for the period after 1971 an income elsticity of 1 02 and a long run price elasticity of 0 37 are obtained

sequential equilibria in a ramsey tax model this paper presents a full characterization of the equilibrium value set of a ramsey tax model more generally it develops a dynamic programming method for a class of policy games between the government and a continuum of households by selectively incorporating euler conditions into a strategic dynamic programming framework we wed two technologies that are usually considered competing alternatives resulting in a substantial simplification of the problem

energy consumption and economic activity in industrialized countries the dynamic aggregate time series relationship abstract most econometric studies suggest that the income elasticity of demand for energy is approximately unity for the developed market economies it is shown that over the period 1950 1978 the long run income elasticity is substantially higher than unity in terms of a ces energy demand function this result reflects the application of a generalized dynamic estimation methodology where serial correlation is regarded as a diagnostic guide to distributed lag fitting price elasticities are also estimated but these are in line with conventional estimates

fiscal policy under loose commitment due to time inconsistency or political turnover policymakers promises are not always fulfilled we analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised in this loose commitment setting the properties of labor and capital income taxes are significantly different than under the full commitment and no commitment assumptions because of the occasional reoptimizations the average capital income tax is positive even in the long run also the autocorrelation of taxes is lower their volatility with respect to output increases and the correlation between capital income taxes and output changes sign our method can be used to analyze the plausibility and the importance of commitment in a wide class of dynamic problems

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

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

why and how to regulate power exchanges in the eu market integration context abstract the european union eu market integration is leading to increasingly monopolistic electricity market infrastructures which has opened a debate on the regulation of these so called power exchanges in this paper we start by stating that there are two types of power exchanges in europe i e merchant and cost of service regulated power exchanges we then discuss how regulation can be used to better align their incentives with the main power exchange tasks we conclude that adopting the cost of service regulated model for all power exchanges in europe could be counterproductive in the current context but that regulation can help ensure that the benefits of the eu market integration materialize promising regulatory actions include tempering the reinforced market power of power exchanges and quality of service regulation for the ongoing cooperation among power exchanges to organize trade across borders

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

debt and deficit fluctuations and the structure of bond markets we analyse the implications of optimal taxation for the stochastic behaviour of debt we show that when a government pursues an optimal fiscal policy under complete markets the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase by contrast under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit data for us government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness

economic modelling of energy services rectifying misspecified energy demand functions abstract although it is well known that energy demand is derived since energy is required not for its own sake but for the energy services it produces such as heating lighting and motive power energy demand models both theoretical and empirical often fail to take account of this feature in this paper we highlight the misspecification that results from ignoring this aspect and its empirical implications biased estimates of price elasticities and other measures and provide a relatively simple and empirically practicable way to rectify it which has a strong theoretical grounding to do so we develop an explicit model of consumer behaviour in which utility derives from consumption of energy services rather than from the energy sources that are used to produce them as we discuss this approach opens up the possibility of examining many aspects of energy demand in a theoretically sound way that have not previously been considered on a widespread basis although some existing empirical work could be interpreted as being consistent with this type of specification while this formulation yields demand equations for energy services rather than for energy or particular energy sources these are shown to be readily converted without added complexity into the standard type of energy demand equation s that is are typically estimated the additional terms that the resulting energy demand equations include compared to those that are typically estimated highlight the misspecification that is implicit when typical energy demand equations are estimated a simple solution for dealing with an apparent drawback of this formulation for empirical purposes namely that information is required on typically unobserved energy efficiency indicates how energy efficiency can be captured in the model such as by including exogenous trends and or including its possible dependence on past energy prices the approach is illustrated using an empirical example that involves estimation of an aggregate energy demand function for the uk with data over the period 1960 2011

world crude oil and natural gas a demand and supply model abstract this paper examines world markets for crude oil and natural gas over the period 1918 1999 it analyzes the time series properties of output and prices and estimates demand and supply elasticities during 1918 1973 and 1973 1999 oil and gas prices were stable during the first period they became volatile afterwards reflecting deep changes in the market structure following the oil shock in 1973 demand price elasticities were too low however demand income elasticities were high supply price elasticities were also too low the elasticity estimates help to explain the market power of the oil producers and price volatility in response to shocks and corroborate elasticity estimates in energy studies

endogenous capital utilization investor s effort and optimal fiscal policy abstract the present paper studies the implications of endogenous capital utilization and investor s effort on the structure and time consistency of optimal fiscal policy the main results are that levies of old capital are distortionary and should therefore not be used at confiscatory rates that in a steady state capital and labor income should be taxed at the same rate and investment should be subsidized at the same rate as the tax rate and that the optimal tax policy can be made time consistent through debt restructuring

electricity spot price dynamics beyond financial models we reveal properties of electricity spot prices that cannot be captured by the statistical models commonly used to model financial asset prices that are increasingly used to model electricity prices using more than eight years of half hourly spot price data from the new zealand electricity market we find that the half hourly trading periods fall naturally into five groups corresponding to the overnight off peak the morning peak daytime off peak evening peak and evening off peak the prices in different trading periods within each group are highly correlated with each other yet the correlations between prices in different groups are lower models adopted from the modeling of security prices that are currently applied to electricity spot prices are incapable of capturing this behavior we use a periodic autoregression to model prices instead showing that shocks in the peak periods are larger and less persistent than those in off peak periods and that they often reappear in the following peak period in contrast shocks in the off peak periods are smaller more persistent and die out perhaps temporarily during the peak periods current approaches to modeling spot prices cannot capture this behavior either

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