estimates of effective marginal tax rates on factor incomes this chapter describes a method of calculating summary measures of effective factor income tax rates in the united states using readily available data the numbers resulting from application of this method in a study are reported in the chapter and some of their possible uses are discussed the estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy the postwar movement in the tax rate on income from labor relative to that on income from capital or more accurately the relevant components of these tax rates provides suggestive support for the miller scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax the tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate held capital they are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden

deep habits price rigidities and the consumption response to government spending this paper inspects the deep habits mechanism originally used by ravn schmitt grohe and uribe 2006 to generate the positive comovement of public and private consumption observed in many var studies in their set up the price elasticity of demand is pro cyclical and it is optimal for the firm to lower the mark up while expanding production after the fiscal shock raising the demand for labor and the real wage consequently agents substitute consumption for leisure and overcome the negative wealth effect of the fiscal expansion here we show that increasing price stickiness reduces the impact of the fiscal shock on the real wage and hinders the rise of consumption if the degree of price stickiness is high enough consumption is crowded out this is in contrast to the role of price rigidities in the standard new keynesian model where they weaken the crowding out of consumption

a review of the recent empirical literature on displaced workers this article reviews the empirical literature on job displacement job displacement is widespread and strongly countercyclical tending to peak during economic downturns but concentrated in indus

interlinked credit and farm intensification evidence from kenya abstract this paper addresses the potential for interlinked credit input output marketing arrangements for particular cash crops to promote food crop intensification using panel survey data from kenya we estimate a household fixed effects model of fertiliser use per hectare of food crops using an instrumental variables approach for addressing the endogeneity of participation in interlinked credit arrangements results indicate that households engaging in interlinked marketing programs for selected cash crops applied considerably greater fertiliser on other crops primarily cereals not directly purchased by the cash crop trading firm these findings suggest that in addition to the direct stimulus that interlinked cash crop marketing arrangements can have on small farmer incomes these institutional arrangements may provide spill over benefits for the productivity of farmers other activities such as food cropping

what happens to wages after displacement faced with limited resources policymakers need to know when and where to target support for displaced workers the academic literature offers little support presenting wide ranging results with no consistent explanation for the observed differences in wages after workers are displaced in this paper we demonstrate that the heterogeneity found in the literature is consistent with varying market conditions the results suggest that support for displaced workers can be more efficiently allocated by considering the timing and location of displacement

credit constraints and the government spending multiplier abstract this paper studies the government spending multiplier in a quantitative model with credit constraints we have four key results first credit constraints reduce the liquidity trap government spending multiplier this occurs partly because credit constraints weaken the expected inflation channel that has been central to large liquidity trap spending multipliers in quantitative models second this result holds even if the rise in government spending does not alter the tightness of the credit constraints third the rise in government spending crowds out private borrowing which leads to tighter credit constraints and even smaller spending multipliers fourth with credit constraints the liquidity trap spending multiplier could be smaller than the spending multiplier during normal times

surplus debt regressions abstract single equation estimates of fiscal reaction functions which relate primary surpluses to past debt gdp ratios and control variables are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior biases arise from failure to model the general equilibrium relationships between government debt and surpluses relationships that bring in the forward looking nature of nominal debt valuation and the role of monetary policy in that valuation

an equilibrium model of the business cycle with household production and fiscal policy the authors estimate a dynamic general equilibrium model of the u s economy that includes an explicit household production sector and stochastic fiscal variables they use their estimates to investigate two issues first the authors analyze how well the model accounts for aggregate fluctuations they find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables second the authors study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

monetary policy and the relative price of durable goods abstract in a structural vector autoregressive model of the us the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive it significantly falls only if narrowly defined as the ratio between new house and nondurables prices these findings are rationalized via the estimation of two sector new keynesian nk models durables prices are estimated to be as sticky as those of nondurables leading to a flat relative price response to a monetary policy shock conversely house prices are estimated to be almost flexible such results survive several robustness checks and a three sector extension of the nk model these findings have implications for building nk models with durable and nondurable goods and for the conduct of monetary policy

earnings losses and unemployment of displaced workers in germany data from the german socio economic panel are used to examine the experiences of german workers following job displacement due to plant closure in the year of displacement annual earnings decline

smallholder production structure and rural roads in africa the case of nakuru district kenya data from a 1998 survey of farming households in kenya is used to estimate the effects of poor rural road infrastructure and high market access costs on the structure of smallholder farm production simultaneous estimation of cost and input share equations reveals rational responses by farmers to high access costs in the expected continued absence of major investments in rural infrastructure in countries such as kenya the policy challenge is to identify and catalyse institutional innovations that reduce a range of transaction costs increase financial liquidity increase social capital and reduce risk

the output and welfare effects of government spending shocks over the business cycle how does the output response to a change in government spending vary over the business cycle what are the welfare eects of spending shocks this paper studies the state dependence of the output and welfare eects of shocks to government purchases in a dsge model with real and nominal frictions and a rich scal nancing structure both the output multiplier the change in output for a one dollar change in government spending and the welfare multiplier the consumption equivalent change in welfare for the same change in spending move signicantly across states but tend to co move negatively with one another in an historical simulation the output multiplier is countercyclical correlation with detrended output of 0 4 and strongly negatively correlated with the welfare multiplier correlation between multipliers of 0 9

downward nominal wage rigidity and state dependent government spending multipliers abstract despite much empirical evidence on business cycle dependent government spending multipliers the theoretical channels underlying such results are uncertain in an environment with involuntary unemployment this paper shows that downward nominal wage rigidity which arises only in recessions can generate business cycle dependent government spending multipliers in line with keynesian views a demand stimulus reduces unemployment in recessions and may not drive up inflation and wages as in expansions thus the positive income effects from reduced unemployment and weaker crowding out effects from a smaller increase in the real interest rate enhance the expansionary spending effects in recessions the theoretical implications are largely consistent with existing empirical evidence on business cycle dependent government spending effects on key macroeconomic variables

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

comparing new keynesian models of the business cycle a bayesian approach abstract the baseline new keynesian model cannot replicate the observed persistence in inflation output and real wages for sensible parameter values as a result several extensions have been suggested to improve its fit to the data we use a bayesian approach to estimate and compare the baseline sticky price model of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 and three extensions our empirical results are as follows first we find that adding price indexation improves the fit of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 model second models with both staggered price and wage setting dominate models with only price rigidities third introducing wage indexation does not significantly improve the fit fourth all model estimates suggest a high degree of price stickiness fifth the estimates of labor supply elasticity are higher in models with both staggered price and wage contracts finally the estimated inflation parameters of the taylor rule are stable across models

choosing a control group for displaced workers the vast majority of studies on the earnings of displaced workers use a control group of continuously employed workers to examine the effects of initial displacements this approach implies long lived earnings reductions following displacement even if these effects are not persistent overstating the losses relative to the true average treatment effect this paper s approach isolates the impact of an average displacement without imposing continuous employment on the control group in a comparison of the standard and alternative approaches using psid data the estimated long run earnings losses fall dramatically from 25 percent to 5 percent model simulations reinforce these empirical findings

great recession slow recovery and muted fiscal policies in the us this paper reconsiders the role of macroeconomic shocks and policies in determining the great recession and the subsequent recovery in the us the great recession was mainly caused by a large demand shock and by the zlb on the interest rate policy in contrast with previous findings the subsequent jobless recovery is explained by the zlb effect we estimate a fraction of non ricardian households which is close to 50 and obtain comparatively large fiscal multipliers however we cannot detect a significant contribution of fiscal policies in stabilizing the us economy for instance the 2007 2009 large increase in expenditure to gdp ratios was apparently determined by the adverse non policy shocks that caused the recession

consumption government spending and the real exchange rate using panel structural var analysis and quarterly data from four industrialized countries we document that an increase in government purchases raises output and private consumption deteriorates the trade balance and depreciates the real exchange rate this pattern of comovement poses a puzzle for both neoclassical and keynesian models an explanation based on the deep habit mechanism is proposed an estimated two country model with deep habits is shown to replicate well the observed responses of output consumption and the trade balance and the initial response of the real exchange rate to an estimated government spending shock

government spending and heterogeneous consumption dynamics abstract what is the effect of government spending on consumption neoclassical and new keynesian models deliver opposing predictions and empirical studies differ in their conclusions this paper takes a data driven approach and exploits information from over 200 variables via a bayesian factor augmented var model i use sign restrictions for identifying effects that both classes of models agree upon this approach imposes a minimal set of restrictions on the empirical model leaving the sign and magnitude of the effect of government spending on consumption free to be determined by the data i find that i government spending increases aggregate consumption ii the estimated spending multiplier is close to 2 iii there exists heterogeneity even within durable nondurable and service consumption variables which is undocumented in the literature finally i show that my identified structural shocks are not predictable by economic agents and are uncorrelated with traditional monetary policy shocks suggesting that these effects are not confounded by monetary policy

weather shocks and agricultural commercialization in colonial tropical africa did cash crops alleviate social distress a rapidly growing body of research examines the ways in which climatic variability influences economic and societal outcomes this study investigates how weather shocks triggered social distress in british colonial africa further it intervenes in a long standing and unsettled debate concerning the effects of agricultural commercialization on the abilities of rural communities to cope with exogenous shocks we collect qualitative evidence from annual administrative records to explore the mechanisms linking weather extremes to harvest failures and social distress we also conduct econometric testing on a novel panel dataset of 143 administrative districts across west south central and east africa in the interwar era 1920 39 our findings are twofold first we find robust evidence that rainfall anomalies both drought and excessive precipitation are associated with spikes in imprisonment our proxy for social distress we argue that the key causal pathway is the loss of agricultural income which results in higher imprisonment for theft unrest debt and tax default second we find that the impact of weather shocks on distress is partially mitigated by the cultivation of export crops our findings suggest that even in the british colonial context smallholder export crop cultivation led to higher private incomes as well as greater public investment our findings speak to a topic of considerable urgency today as the process of global climate change accelerates generating more severe and unpredictable climatic extremes an increased understanding and identification of adaptive and mitigating factors would assist in targeting policy interventions and designing adaptive institutions to support vulnerable rural societies

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

fiscal trends in real economic aggregates using cointegration analysis the authors examine long term interactions between fiscal variables and the consumption output and leisure labor ratios the motivation is to test if fiscal trends are an independent source of stochastic trends underlying the long run behavior of real economic aggregates the authors results support the presence of fiscal trends and can be interpreted quite well in terms of the equilibrium approach to fiscal policy they suggest that neoclassical growth models that embed fiscal trends and distinguish between components of government purchases are more consistent with the data than simple real business cycle models copyright 1995 by ohio state university press

consumer response to maize market liberalization in urban kenya abstract the elimination of consumer food subsidies associated with structural adjustment in africa has been widely thought to exacerbate food insecurity for low income consumers this article determines how urban maize consumption and expenditure patterns have responded to the liberalization of the maize and maize meal markets in kenya the article decomposes changes in maize meal prices attributable to changes in maize grain prices and maize milling margins results are obtained through two random household surveys in nairobi the first having been conducted before and the second after liberalization the main finding of the study is that maize market liberalization has conferred substantial benefits to urban consumers the combined saving to nairobi consumers from lower maize milling costs has been roughly us 10 1 million each year about the same amount that the government of kenya allocates annually to agricultural research results also indicate that the former consumer subsidies conferred through the official marketing channel were untargeted and actually inversely related to household income the subsidies on sifted meal also served to entrench a non competitive market structure that inhibited the development of a lower cost informal milling system these findings are consistent with research results from other eastern and southern african countries showing that the negative effects of eliminating food subsidies in the state marketing system have been largely compensated by relaxing controls on private grain trade which has increased consumers access to less expensive grain products distributed through informal markets

scar effects of unemployment an assessment of institutional complementarities this article uses panel data from the survey of income and program participation sipp and the european community household panel echp for a comparative analysis of workers post unemployment earnings trajectories in the united states and 12 western european countries across the study sample of industrialized countries results of difference in difference propensity score matching show post unemployment earnings losses to be largely permanent and particularly significant for high wage and older workers as well as for women the analyses also show that negative effects of unemployment on workers subsequent earnings are mitigated through either generous unemployment benefit systems or strict labor market regulation these effects stem partly from favorable behavioral responses that prevent downward occupational and industrial mobility and partly from changes in the overall structure of labor markets favoring the transferability of worker skills between jobs these positive effects materialize despite t

the heterogeneous responses of consumption between poor and rich to government spending shocks government spending shocks have substantially different effects on consumers across the income distribution consumption increases for the poor whereas it decreases for the rich in response to a rise in government expenditure i shed light on this issue by incorporating a progressive tax scheme and productive public expenditure into a heterogeneous agent model economy with indivisible labor the model economy is able to successfully match aggregate and disaggregate effects of government spending shocks on consumption when the government increases its spending and accompanies it by a rise in tax progressivity the poor are employed and increase their consumption since after tax wage rates increase while the rich decrease their consumption because of a fall in after tax wage rates

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

time to build consumption complementarity and fiscal stimulus abstract we show that time to build which creates a time gap between government spending and the accumulation of public goods is an important element that weakens the effectiveness of fiscal stimulus in the environment where private consumption and public goods are edgeworth complements adding time to build to the model delays the timing of utility enhancing effects of an increase in government expenditure leading households to shift consumption from today to the future the expansionary effect of government spending is hence dampened which contrasts existing studies with edgeworth complementarity between private and public consumption

some fiscal calculus what is the impact of fiscal policy on the econ omy how large are the multipliers of govern ment spending and tax cuts this old question has recently received considerable attention in par ticular in the context of the american recovery and reinvestment act arra of 2009 i contribute to answering that question by calculating fiscal multipliers in a baseline neo classical growth model with endogenous labor supply and fiscal policy allowing for govern ment spending transfers government debt and distortionary taxes on labor and capital income the policy experiments are conducted holding transfers consumption taxes and capital income taxes fixed i e changes in taxation require changes in the distortionary labor tax the model is simple and fairly standard as an additional contribution i provide the model in an elegant and tractable form starting from a fairly general formulation and pointing out the key functional form properties for characterizing the dynamics the formulation of the model here or versions

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

interlinked markets and the cash crop food crop debate in land abundant tropical agriculture the purpose of this article is to illustrate how such institutions do arise in the african context under certain preconditions it is argued that the lack of a land market due largely to a non capitalist conception of property rights over land 3 along with other conditions to be examined below leads to the failure of labor and private sector credit markets in response indigenous institutions have evolved to cope with the market failures

addressing household indebtedness monetary fiscal or macroprudential policy in this paper we build a dynamic stochastic general equilibrium model with housing and household debt and compare the effectiveness of monetary policy housing related fiscal policy and macroprudential regulations in reducing household indebtedness

government investment and fiscal stimulus effects of government investment are studied in an estimated neoclassical growth model the analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus implementation delays for building public capital and expected fiscal adjustments to deficit financed spending implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run anticipated fiscal adjustments matter both quantitatively and qualitatively for long run growth effects when public capital is insufficiently productive distorting financing can make government investment contractionary at longer horizons

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

on risk transactions and economic development in the semiarid tropics recent interest in the institutions and production relations of tropical agriculture seem to hold promise for increased collaboration between economists and anthropologists in efforts to explain existing patterns of production and socioeconomic interaction this focus on customs and on the more formal institutional arrangements is encouraging given the continuing concern for food production in much of the semiarid tropics two recent papers are particularly germane to this growing literature h p binswanger and m r rosenzweig have offered a foundation for addressing the production relations in agriculture with a general focus on conditions in south asia more recently binswanger and j mcintire provide an explanation for the major institutions and customary features of production relations in three agroclimatic subzones of the land abundant tropics that have simple technology and high transport costs 2 they also offer predictions of how these institutions and features might change in response to the opening up of subsistence economies and to population growth our approach here is consistent with this recent work in several respects first it is explanatory in that we offer possible explanations for observed behavior in the land abundant tropics where agriculture is a mixture of cropping and livestock management second it is predictive in that we draw on economic theory to hypothesize likely changes in behavior in the face of institutional change finally it is offered in the interest of stimulating a concern for the institutional preconditions of economic development by such preconditions we have in mind the institutional arrangements that can stimulate the economic development process in particular we focus on the role of transactions in the economy we do not believe that there is anything intrinsically undesirable about transactions that are restricted to a circle of family and acquaintances on the contrary such transactions play an important

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

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

on fiscal multipliers estimates from a medium scale dsge model this paper contributes to the debate on fiscal multipliers in the context of a structural model i estimate a micro founded dynamic stochastic general equilibrium model that features a rich fiscal policy block and a transmission mechanism for government spending shocks using bayesian techniques for us data

optimal monetary policy with countercyclical credit spreads we study optimal monetary policy in a new keynesian dynamic stochastic general equilibrium dsge model with a credit channel and relationship lending in banking we show that borrowers bank specific deep habits give rise to countercyclical credit spreads which in turn make optimal monetary policy depart substantially from price stability under both discretion and commitment our analysis shows that the welfare costs of setting monetary policy under discretion with respect to the optimal ramsey plan and of using simpler suboptimal policy rules are strictly increasing in the magnitude of deep habits in credit markets and market power in banking

deep habits and exchange rate pass through abstract habit persistence at the level of individual goods varieties can explain incomplete exchange rate pass through to international prices deep habits give rise to a dynamic import demand function that leads to import price markup adjustments independently of nominal pricing frictions augmenting a two country dsge model with deep habits we obtain low exchange rate pass through to import prices even when nominal local currency price rigidities are negligibly low as nominal pricing frictions become more important the presence of deep habits further impedes the pass through of exchange rate fluctuations estimating model variants with limited information as well as full information methods we find that the deep habits model requires much lower degrees of nominal price rigidities to match empirical measures of the pass through of exchange rate fluctuations to us import prices

the fiscal state dependent effects of capital income tax cuts abstract using the post wwii data of u s federal corporate income tax changes within a smooth transition var this paper finds that the output effect of capital income tax cuts is government debt dependent it is less expansionary when debt is high than when it is low to explore the mechanisms that can drive this fiscal state dependent tax effect the paper uses a dsge model with regime switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment as government debt increases to a sufficiently high level the probability of future fiscal adjustments starts rising and the expansionary effects of a capital income tax cut can diminish substantially whether the expected adjustments are through a policy reversal or a consumption tax increase also a capital income tax cut need not always have large revenue feedback effects as suggested in the literature

transport costs and smallholder cropping choices an application to siaya district kenya smallholders regularly devote shares of resources to low yielding food crops than they do to cash crops that have higher market returns in this paper costly exchange is incorporated into an agricultural household model and a numerical nonseparable version of the model is used to show that seemingly inefficient cropping choices of this type in siaya district kenya can be explained as rational food import substitution given high transport costs in product markets improved rural road networks that reduce these costs could abate motives to meet food needs through domestic production and promote specialization that raises farm incomes

in the right place at the wrong time the role of firms and luck in young workers careers we examine administrative data on young german workers and their employers to study the long term effects of an early career job loss to account for nonrandom sorting of workers into firms with different turnover rates and for selective job mobility we use changes over time in firm and age specific labor demand as an instrument for displacement we find that wage losses of young job losers are initially 15 percent but drop to zero within five years only workers leaving very large establishments suffer persistent losses a comparison of estimators implies that initial sorting negative selection and voluntary job mobility biases ordinary least squares estimates toward finding permanent negative effects of early displacements

asymmetric effects of exogenous tax changes abstract we study whether output responds symmetrically to tax increases and decreases in postwar us data using the identification strategy in romer and romer 2010 we find evidence of important asymmetries the output response to a tax increase is statistically insignificant but output shows a significantly positive and permanent increase following a tax decrease we show that this asymmetry appears to be driven by individual income tax changes and is transmitted to the economy through asymmetric response in aggregate consumption to tax increases and tax decreases we also present a simple model that rationalizes our empirical findings and illustrates how asymmetric output and consumption responses to sign based tax changes can be generated by plausible consumption adjustment costs

government spending and private consumption some international evidence this paper investigates the relationship between private consumption and publicly provided goods and services for a number of countries the empirical results show that in the aggregate private and government consumption are best described as complementary in the sense that an increase in one raises the marginal utility of the other the strength of this relationship is shown to be negatively affected by the government size these findings are robust across all specifications tried copyright 1994 by ohio state university press

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

when does government debt crowd out investment summary we examine when government debt crowds out investment for the us economy using an estimated new keynesian model with detailed fiscal specifications and accounting for monetary and fiscal policy interactions whether investment is crowded in or out in the short term depends on policy shocks triggering debt expansions higher debt can crowd in investment for cutting capital tax rates or increasing government investment contrary to the conventional view no systematic relationships between real interest rates and investment exist explaining why reduced form regressions are inconclusive about crowding out at longer horizons distortionary financing is important for the negative investment response to debt copyright 2013 john wiley sons ltd

monetary and fiscal policy under deep habits allowing habits to be formed at the level of individual goods deep habits can radically alter the fiscal policy transmission mechanism as the counter cyclicality of mark ups this implies can result in government spending crowding in rather than crowding out private consumption in the short run we explore the robustness of this mechanism to the existence of price discrimination in the supply of goods to the public and private sectors we then describe optimal monetary and fiscal policy in our new keynesian economy subject to the additional externality of deep habits and explore the ability of simple policy rules to mimic fully optimal policy we find that the presence of deep habits at empirically estimated levels can imply large externalities that significantly affect the conduct of monetary and tax policy however despite the rise in government spending multipliers implied by deep habits government spending is barely used as a stabilisation tool under the optimal policy

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

cash cropping and food crop productivity synergies or trade offs the case for promoting export oriented cash crops in africa has generally been based on their direct potential contribution to agricultural productivity and small farmer incomes a relatively neglected avenue of research concerns the synergistic effects that cash cropping can have on other household activities including food production the conventional view that cash crops compete with food crops for land and labour neglects the potential for cash crop schemes to make available inputs on credit management training and other resources that can contribute to food crop productivity which might otherwise not be accessible to farmers if they did not participate in cash crop programs this article builds on previous research by hypothesising key pathways by which cash crops may affect food crop activities and empirically measuring these effects using the case of cotton in gokwe north district in zimbabwe analysis is based on instrumental variable analysis of survey data on 430 rural households in 1996 results indicate that after controlling for household assets education and locational differences households engaging intensively in cotton production obtain higher grain yields than non cotton and marginal cotton producers we also find evidence of regional spill over effects whereby commercialisation schemes induce second round investments in a particular area that provide benefits to all farmers in that region regardless of whether they engage in that commercialisation scheme the study suggests that the potential spill over benefits for food crops through participation in cash crop programs are important to consider in the development of strategies designed to intensify african food crop production

fiscal stimulus and systematic monetary policy postwar evidence for the united states abstract i provide structural var evidence that u s fiscal stimulus programs induce a systematic loosening of interest rates outside of zero lower bound episodes i characterize this policy easing by the fed as an indirect reaction to disinflationary dynamics unleashed by fiscal stimulus a finding i corroborate via taylor rule estimations the supporting monetary policy stance amplifies the impact of the expansion in public spending on gdp by roughly one third my evidence aligns with fiscal policy models featuring deep habits in consumption the empirical regularity of accommodating policy rates moreover questions the perception of stimulus being more effective when policy rates are stuck at zero

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

debt dependent effects of fiscal expansions abstract economists often postulate that fiscal expansions are less stimulative when government debt is high than when it is low empirical evidence however is ambiguous using a nonlinear neoclassical growth model we show that the difference in government spending effects between high and low debt environments depends on the wealth effect on labor supply and on whether the government uses taxes or spending to retire debt because of interrelated state variables structural var estimations conditioning on debt alone can fail to isolate debt dependent effects also uncertainty on when the government will conduct fiscal consolidations generates wide confidence bands for spending multipliers further complicating efforts to estimate debt dependent government spending effects

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

policy regimes policy shifts and u s business cycles abstract using an estimated dsge model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy we find that a passive monetary and passive fiscal policy regime prevailed in the pre volcker period this gave rise to self fulfilling beliefs and unconventional transmission mechanisms of policy shifts unanticipated increases in interest rates increased inflation and output while unanticipated increases in lump sum taxes decreased inflation and output we show that had the monetary policy regime of the post volcker era been in place pre volcker inflation volatility would have been lower by 25 and the rise of inflation in the 1970s would not have occurred

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

to specialize or diversify agricultural diversity and poverty dynamics in ethiopia recent agricultural development policies have begun to shift focus from the promotion of a few staple crops toward encouraging crop diversity the belief is that crop diversification is an effective strategy for dealing with a variety of issues including poverty alleviation however there is a lack of empirical evidence to justify these positions we contribute to filling this research gap by providing quantitative evidence on the impact of diversity in crop cultivation on household poverty using household panel data from ethiopia we develop a diversity index to measure the effect of crop diversity on poverty status to control for endogeneity and selection bias resulting from unobserved heterogeneity we utilize a recently developed parametric method for estimating dynamic binary response models with endogenous contemporaneous regressors our results provide evidence that households which grow a diverse set of crops are less likely to be poor than households that specialize in their crop production additionally crop diversity reduces the probability that a non poor household will fall into poverty and the probability that a poor household will remain in poverty we conclude that crop diversification is a viable way to deal with the exigencies of being poor

propagation mechanisms for government spending shocks a bayesian comparison the inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures observed in many empirical studies has stimulated the development of alternative theories of government spending shocks using the bayesian approach we evaluate the quantitative performance of five extant models and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model moreover we find that consumption decreases in all estimated models in response to a rise in government spending

fiscal multipliers in the eurozone an svar analysis we compute the value of fiscal multipliers for government primary expenditure income and wealth taxes and for production and import taxes in the eurozone countries since the creation of the curr

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

an empirical analysis on the substitutability between private consumption and government purchases abstract this paper estimates substitutability of government purchases for private consumption using an optimal consumption model the utility function features several types of nonseparabilities the paper finds that gmm estimates are affected by the specification of nonseparability between private consumption and government purchases by the restriction of time separability and by the measurement of real interest rates

leaning against windy bank lending using a dynamic stochastic general equilibrium model with banking this paper first provides evidence that during the great moderation monetary policy leaned against the wind blowing from the loan market in the us it then shows that the extent to which this occurred delivers a small welfare loss relative to the optimised simple interest rate rule that features only a response to inflation the source of business cycle fluctuations is crucial for the optimality of a leaning against the wind policy in fact the pro cyclical nature of lending creates a trade o between inflation and financial stabilisation when supply shocks are prevalent

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

income after job loss the role of the family and the welfare state that displaced workers suffer long lasting earnings losses is a stylized fact raising the question whether these losses are replaced by other means for married men increased labour supply by the wife may be one way another possibility is that the public welfare system offsets the same losses i used a swedish longitudinal data set containing married couples where the husband was either employed or made redundant in 1987 by an establishment closure there was no evidence that husbands job loss positively affected wives annual earnings although husbands utilization of unemployment insurance increased significantly government transfers including also sickness insurance disability insurance and means tested social benefits did not fully replace husbands long run earnings losses hence displaced workers seem to suffer also from long lasting losses in family income which in many respects is a better measure of economic welfare than individual earnings or wages

are workers permanently scarred by job displacements this paper investigates whether workers suffer lasting scars following job displacements using david t ellwood s 1982 terminology scars represent persistent effects whereas blemishes are transitory adjustments which dissipate over time more precisely dislocated individuals are defined as scarred if they continue to earn less or to be unemployed more than their nondisplaced counterparts even after the conclusion of a several year adjustment period