capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

taxation and the taylor principle a nominal tax system is added to a sticky price monetary business cycle model when nominal interest income is taxed the coefficient on inflation in a taylor type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium when effective tax rates are raised by inflation the stability of the economy s equilibrium can be adversely affected finally when depreciation is treated as a charge against taxable income an even larger weight on inflation is required in the taylor rule in order to obtain a determinate and stable equilibrium

targeted transfers and the fiscal response to the great recession abstract between 2007 and 2009 government expenditures increased rapidly across the oecd countries while economic research on the impact of government purchases has flourished in the data most of the increase in expenditures was in government transfers after documenting this fact we argue that future research should focus on the positive impact of transfers towards this we present a model in which there is no representative agent and ricardian equivalence does not hold because of uncertainty imperfect credit markets and nominal rigidities targeted lump sum transfers are expansionary both because of a neoclassical wealth effect and because of a keynesian aggregate demand effect

precautionary saving over the business cycle we study the macroeconomic implications of time varying precautionary savings within a general equilibrium model with borrowing constraints aggregate shocks and uninsurable idiosyncratic unemployment risk our framework generates limited cross sectional household heterogeneity as an equilibrium outcome thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way the time series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand to mouth and representative agent models and it is comparable to that produced by the krusell and smith 1998 model

government size and macroeconomic stability abstract we analyze the effects of government size on output variability in the context of a rbc model in which government size is parameterized by the income tax rate and the share of government purchases in output the model implies that i income taxes are destabilizing and ii for most specifications considered government purchases are stabilizing we compare those predictions with the results of simple cross country regressions using data for 22 oecd countries the estimated relationship between empirical indicators of government size and measures of gdp variability appears far stronger than the model predicts and often has the opposite sign

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

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

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

the effectiveness of government debt and transfers as insurance abstract government debt and redistributive taxation can help people to smooth consumption when facing uninsurable individual specific risk i examine the effects that variations in public debt and transfers have on risk sharing efficiency and the distribution of resources i find that risk sharing can be improved significantly by both debt and transfers but that debt has adverse effects on equity when used in isolation debt will enhance welfare if transfers are lower than optimal however the beneficial effects of public debt vanish if transfers are used optimally

employment prospects and the propagation of fiscal stimulus abstract this paper studies a mechanism that amplifies the effects of a rise in government purchases through private consumption fiscal stimulus increases aggregate demand boosts job creation and as a consequence improves job finding rates this in turn reduces individual unemployment risk faced by households decreases precautionary motives and crowds private spending in additionally higher job finding rates affect aggregate labor market flows which raises the ratio between employed and unemployed workers as the former feature higher spending than the latter then mechanically aggregate consumption increases a calibrated model with uninsured idiosyncratic risk frictional labor market and sticky prices is used to isolate and to quantify the joint impact of these two forces the so called employment prospects channel i find that when it is shut off the drop in the values of both impact and cumulative multipliers is substantial and ranges from 32 to 38 under various monetary and fiscal policy rules

on measuring the effects of fiscal policy in recessions we do not have a good measure of the effects of fiscal policy in a recession because the methods that we use to estimate the effects of fiscal policy both those using the observed outcomes following different policies in aggregate data and those studying counterfactuals in fitted model economies almost entirely ignore the state of the economy and estimate the government multiplier which is presumably a weighted average of the one we care about the multiplier in a recession and one we care less about the multiplier in an expansion notable exceptions to this general claim sug gest this difference is potentially large our lack of knowledge stems significantly from the focus on linear dynamics vector autoregressions and linearized or close to linear dynamic stochastic general equilibrium dsge models our lack of knowledge also reflects a lack of data deep recessions are few and nonlinearities hard to measure the lack of statistical power in the estimation of nonlinear models using aggregate data can be addressed by exploiting estimates of partial equilibrium responses in disaggregated data microeconomic estimates of the partial equilibrium causal effects of a policy can discipline the causal channels inherent in any dsge model of the general equilibrium effects of policy microeconomic studies can also provide measures of the dependence of the effects of a policy on the states of different agents which is a key component of the dependence of the general equilibrium effects of fiscal policy on the state of the

automatic stabilizers and economic crisis us vs europe this paper analyzes the effectiveness of the tax and transfer systems in the eu and the us to provide income insurance through automatic stabilization in the recent economic crisis we find that automatic stabilizers absorb 38 of a proportional income shock in the eu compared to 32 in the us in the case of an unemployment shock 47 of the shock is absorbed in the eu compared to 34 in the us this cushioning of disposable income leads to a demand stabilization of up to 30 in the eu and up to 20 in the us there is large heterogeneity within the eu automatic stabilizers in eastern and southern europe are much lower than in central and northern european countries we also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs

taxes transfers and employment in an incomplete markets model the consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets the effects are contrasted with those obtained in a stand in household model featuring no idiosyncratic shocks and complete markets the main finding is that the impact on hours remains very large but the welfare consequences are very different the analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment

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

a further look at the propagation of monetary policy shocks in hank we provide quantitative guidance on whether and to what extent different elements of heterogeneous agent new keynesian hank models amplify or dampen the response of aggregate consumption to a monetary policy shock we emphasize four findings first the introduction of capital adjustment costs does not affect the aggregate response but does change the transmission mechanism so that a larger share of indirect effects originates from equity prices rather than from labor income second incorporating estimated unequal incidence functions for aggregate labor income fluctuations leads to either amplification or dampening depending on the data and estimation methods third distribution rules for monopoly profits that allocate a larger share to liquid assets lead to greater amplification fourth assumptions about the fiscal reaction to a monetary policy shock have a stronger effect on the aggregate consumption response than any of the other three elements

law of one price in international commodity markets a fractional cointegration analysis the law of one price lop is an important component of most if not all international trade models because this assumption allows researchers to use a single representative price for all regions this paper examines the long run lop for international commodity prices using a generalized notion of cointegration called fractional cointegration this analysis is applied to nine pairs of price series supporting the existence of lop in eight cases

solving the incomplete markets model with aggregate uncertainty using the krusell smith algorithm and non stochastic simulations abstract this article describes the approach to computing the version of the stochastic growth model with idiosyncratic and aggregate risk that relies on collapsing the aggregate state space down to a small number of moments used to forecast future prices one innovation relative to most of the literature is the use of a non stochastic simulation routine

rethinking fiscal policy the use of fiscal policy as a stabilization device has all but vanished more or less explicitly in europe and de facto in the united states the practical consequences have not been entirely satisfactory in either place so it is important and timely that the oxford review is devoting a special issue to the macroeconomics of fiscal policy in this paper i want to discuss two underlying questions about the eclipse of fiscal policy why did this happen and was it a good ideaq and if it was not a good idea then what followsq copyright 2005 oxford university press

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

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

the transmission of monetary policy through redistributions and durable purchases this paper studies a redistribution channel for the transmission of monetary policy using a tractable olg setting in which the government is a net debtor we show that standard open market operations omo conducted by central banks have signi cant revaluation eects that alter the level and distribution of wealth in the economy and the real interest rate expansionary omo generate a negative wealth eect the private sector as a whole is a net creditor to the government increasing households incen tives to save for retirement and pushing down the real interest rate this in turn leads to a substitution towards durables generating a temporary boom in the durable good sector with search and matching frictions a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand raising aggregate employment the mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions the model shows that dierent monetary interventions e g omo versus helicopter drops can have sharply dierent eects on activity

automatic stabilizers fiscal rules and macroeconomic stability abstract this paper analyzes the effect of the fiscal structure upon the trade off between inflation and output stabilization induced by technological shocks in a dge model with nominal and real rigidities that also integrates a rich menu of fiscal variables as well as a target on the debt to output ratio the channels through which fiscal policy affects macroeconomic stability include supply side effects of distortionary taxes the procyclical behavior of public spending induced by fiscal rules and the conventional effect of automatic stabilizers operating through disposable permanent income the paper investigates these channels and concludes that contrary to what has been found in rbc models distortionary taxes tend to reduce output volatility relative to lump sum taxes when significant rigidities are present we also study the stabilization effect of alternative distortionary tax structures and find that these are only relevant if substantial rigidities are present

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

credit crises precautionary savings and the liquidity trap we use a model a la bewly huggett ayagari to explore the eects of a credit crunch on consumer spending households borrow and lend to smooth idiosyncratic income shocks facing an exogenous borrowing constraint we look at the economy response after an unexpected permananent tightening of this constraint the interest rate drops sharply in the short run and then adjusts to a lower steady state level this is due to the fact that after the shock a large fraction of agents is far below their target holdings of precautionary savings and this generates a large temporary positive shock to net lending we then look at the eects on output here two opposing forces are present as households can deleverage in two ways by consuming less and by working more we show that under a reasonable parametrization the eect on consumer spending dominates and precautionary behavior generates a recession if we add nominal rigidities two things happen i supply side responses are muted and ii there is a lower bound on the interest rate adjustment these two elements tend to amplify the recession caused by the credit tightening

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

the macroeconomic implications of rising wage inequality in the united states in recent decades american workers have faced a rising college premium a narrowing gender gap and increasing wage volatility this paper explores the quantitative and welfare implications of these changes the framework is an incomplete markets life cycle model in which individuals choose education intrafamily time allocation and savings given the observed history of the u s wage structure the model replicates key trends in cross sectional inequality in hours worked earnings and consumption recent cohorts enjoy welfare gains on average as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household

the significance of federal taxes as automatic stabilizers using the taxsim model for the period 1962 95 we consider the federal tax system s impact as an automatic stabilizer despite the many changes in the tax system there has been relatively little change in its role as an automatic stabilizer we estimate that individual federal taxes offset perhaps as much as 8 percent of initial shocks to gdp we also suggest that the progressive income tax may help to stabilize output via its effect on the supply of labor an additional effect that may even be of similar magnitude to the more traditional path of stabilization through aggregate demand

social spending and automatic stabilizers in the oecd the macroeconomic literature on automatic stabilization tends to focus on taxes and dismiss the relevance of government expenditure except for unemployment compensation our results go sharply contrary to this view we engage in an empirical analysis of 21 oecd countries from 1982 to 2003 and find that age and health related social expenditure as well as incapacity and sick benefits all react to the cycle in a stabilizing manner while possibly new in the macro literature this conforms to many results in studies in labour economics the policy implications are broad since much previous analysis of discretionary fiscal policy rests on official figures for automatic stabilization there are also major implications for efforts to incorporate automatic fiscal policy in simulation models julia darby and jacques melitz

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

fiscal policy with heterogeneous agents and incomplete markets i undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint temporary tax changes are found to have large real effects in the benchmark model a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost comparing the benchmark incomplete markets model to a complete markets economy income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete copyright 2005 wiley blackwell

rethinking the role of fiscal policy as recently as two years ago there was a widespread consensus among economists that fiscal policy is not useful as a countercyclical instrument now governments in washington and around the world are developing massive fiscal stimulus packages supported by a wide range of economists in universities governments and businesses why has this change occurred what are the principles for designing a potentially useful fiscal stimulus and what will happen if the current fiscal stimulus fails this abstract was borrowed from another version of this item

an ex post welfare analysis of natural gas regulation in the industrial sector the current structure of the us natural gas industry is a result of the evolution of regulatory policy over the past three decades which began with the deregulation of natural gas prices at the wellhead ngpa of 1978 and culminated with the deregulation of interstate transportation of natural gas ferc order 636 focusing on the industrial sector this paper estimates the welfare and price effects associated with the changes in regulatory policy overtime actual prices converge towards estimated equilibrium prices consequently deadweight losses diminished an estimated 15 47 billion 2003 dollars of welfare loss had been incurred from 1977 to 2000

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

solving heterogeneous agent models by projection and perturbation the paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents that combines elements of projection and of perturbation methods the basic idea is to solve first for the stationary solution of the model without aggregate shocks but with fully specified idiosyncratic shocks afterwards one computes a first order perturbation of the solution in the aggregate shocks this approach allows to include a high dimensional representation of the cross sectional distribution in the state vector the method is applied to a model of household saving with uninsurable income risk and liquidity constraints techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible

implementing the new fiscal policy activism to many observers the current recession provides compelling circumstances for renewed fiscal policy activism but the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis however the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism it is not surprising that there have been few advances in discretionary policy design given the lack of favor such policy suffered over many years but if we are going to practice fiscal discretionary policy on a large scale then more attention to policy design is sorely needed this abstract was borrowed from another version of this item

the new keynesian cross abstract the new keynesian nk cross is a graphical and analytical apparatus for heterogeneous agent hank models expressing key aggregate demand objects mpc and multipliers as functions of heterogeneity parameters it affords analytical insights into monetary fiscal and forward guidance multipliers and replicates the aggregate implications of quantitative hank the key parameter the constrained agents income elasticity to aggregate income depends on fiscal redistribution when it is larger smaller than one the effects of policies and shocks are amplified dampened with uninsurable idiosyncratic uncertainty this translates intertemporally through compounding discounting in the aggregate euler equation into further amplification dampening of future shocks

job uncertainty and deep recessions abstract we study a model where households are subject to uninsurable unemployment risk price setting is subject to nominal rigidities and the labor market is characterized by matching frictions and inflexible wages higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive lower goods demand reduces job vacancies and the job finding rate producing an amplification mechanism due to endogenous countercyclical income risk amplification derives from the combination of incomplete financial markets and frictional goods and labor markets the model can account for key features of the great recession

unemployment insurance and capital accumulation abstract in this paper i examine a model economy with production search and unemployment insurance the introduction of capital into the economy of wang and williamson j monetary econom 49 7 2001 1337 generates the result that optimal replacement ratios are always zero the result arises from the decline in aggregate activity caused by unemployment insurance both capital and labor inputs to production fall when benefits rise unlike most of the literature i compute explicitly the cost of the transition path agents are made better off by switching to a steady state with no unemployment insurance but the welfare gain is approximately cut in half only the very poor and unemployed suffer welfare losses along the transition path i then briefly investigate the implications of negative replacement ratios

an empirical analysis of the revival of fiscal activism in the 2000s an empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases households largely saved the transfers and tax rebates the federal government only increased purchases by a small amount state and local governments saved their stimulus grants and shifted spending away from purchases to transfers counterfactual simulations show that the stimulus induced decrease in state and local government purchases was larger than the increase in federal purchases simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount these results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago jel e21 e23 e32 e62 h50

drowned by numbers stabilization properties of an eu wide unemployment insurance system the recent crisis has given rise to proposals for the creation of a european unemployment insurance system we simulate an eu wide mechanism under various scenarios varying methods of financing common or country specific contribution rates and triggers for pay outs all time or contingent clauses we analyse the impact of the system using different measures of stabilization under different fiscal multipliers a system operating during bad times periods where the increase in unemployment is large would reduce gdp growth variability but also growth correlation among member countries hence there is a trade off between stabilization and synchronization of national business cycles

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second

fiscal policy and occupational employment dynamics we document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the united states employment rises most strongly in service sales and office pink collar occupations by contrast employment in blue collar occupations is hardly affected by fiscal policy we provide evidence that occupation specific changes in labor demand are key for understanding these findings we develop a business cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation specific within industry employment shifts due to differences in the short run substitutability between labor and capital services across occupations