spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

supply side option value further discussion the literature on benefit cost analysis under uncertainty has devoted considerable attention to identifying conditions under which the sign of option value can be determined option value is the difference between an ex ante sure welfare measure based on expected utility functions known as option price and the expected value of welfare measures defined ex post for each state of nature previous investigations have shown that there is limited ability to specify analytically the sign of option value if uncertainty concerns the preferences of individuals then the sign of option value cannot be established without placing restrictions on preferences schmalansee 1972 anderson 1979 smith 1983 however bishop 1982 has demonstrated that if the uncertainty concerns the supply of the good in question with certain demand for the good then the sign of option value ov may be positive see also brookshire eubanks and randall 1983 since many valuation situations involve supply side risk bishop s discovery is of some rele

understanding hurricane evacuation decisions under contingent scenarios a stated preference approach we conduct a stated preference analysis to understand the factors that individual households take into consideration to evacuate during hurricanes in designing the contingent scenarios for evacuation we randomly assign varying levels of hurricane characteristics wind speed lead time for landfall and the height of storm surge combined with different types of emergency management options voluntary versus mandatory evacuation order and a voucher with varying amounts to cover evacuation expenses findings indicate that individual households respond in a non linear fashion to the intensity of hurricanes when making evacuation decisions respondents are also more likely to evacuate when the storm surge reaches a certain threshold in terms of policy interventions mandatory evacuation orders are more effective to increase the likelihood of evacuation the potential intervention in the form of providing evacuation vouchers to assist households to cover their expenses e g for food water transportation and lodging also seems effective we discuss policy implications of our findings

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

has excessive public debt slowed world growth this paper contends that worldwide fiscal excess as embodied in heightened public debt levels is central to understanding why global growth has been sub optimal since the transatlantic crisis it notes that in the five years before the 2009 10 financial crisis average world economic growth was close to 5 per cent per year but has since averaged only 3 per cent the author states that government expenditure spiked notably more in advanced economies in response to the crisis and remains around 9 percent higher as a share of gdp in g20 advanced economies on average than in emerging economies the paper explores recent literature which focused explicitly on the crowding out effects of fiscal stimulus in contrast to the keynesian orthodox view attention is focussed on the impact of beneficial austerity on growth and also notes that additional government spending on infrastructure without regard to its productivity is risky

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

identifying fiscal policy in effectiveness from the differential counter cyclicality of government spending in the interwar period differences across decades in the counter cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession we study government spending reaction functions from the 1920s and 1930s for twenty countries there are two main findings first surprisingly government spending was less counter cyclical in the 1930s than in the 1920s second the growth of government spending did not have a significant effect on output growth so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period resume identifier le caractere effectif ou non de la politique fiscale a partir de la contra cyclicite differentielle des depenses gouvernementales pendant l entre deux guerres des differences dans le degre de contra cyclicite de la politique budgetaire peuvent servir a identifier si la croissance des depenses publiques a un effet sur la croissance de l output et accelere ainsi la reprise de l activite suivant une recession nous etudions des fonctions de reaction des depenses publiques pour les annees 1920 et 1930 ce pour vingt pays il en ressort deux resultats principaux premierement et fait surprenant les depenses publiques etaient moins contra cycliques durant les annees 1930 que 1920 deuxiemement la croissance des depenses publiques n a pas eu d effet significatif sur la croissance de l output ce qui permet de douter que cet aspect de la politique budgetaire ait joue un role stabilisateur durant l entre guerre

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

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

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

marginal tax rates and income new time series evidence this paper estimates the dynamic effects of marginal tax rate changes on income reported on tax returns in the united states over the 1950 2010 period after isolating exogenous variation in average marginal tax rates in structural vector autoregressions using a narrative identification approach i find large positive effects of tax cuts in the top 1 of the income distribution in contrast to earlier findings based on tax return data i also find large effects in other income percentile brackets a hypothetical tax reform cutting marginal rates only for the top 1 leads to sizeable increases in top 1 incomes and has a positive effect on real gdp there are also spillover effects to incomes outside of the top 1 but top marginal rate cuts lead to greater inequality in pre tax incomes

the cyclical behavior of the price cost markup countercyclical markups constitute the key transmission mechanism for monetary and other demand shocks in new keynesian models this paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost the first part of the paper studies markups in the aggregate economy and the manufacturing sector we use bils s 1987 insights for converting average cost to marginal cost but do so with richer data we find that all measures of markups are either procyclical or acyclical moreover we show that monetary shocks lead markups to fall with output the second part of the paper merges input output information on shipments to the government with detailed industry data to study the effect of demand changes on industry level markups industry level markups are found to be acyclical in response to demand changes

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

private debt overhang and the government spending multiplier evidence for the united states using state dependent local projections and historical us data we find that government spending multipliers are considerably larger in periods of private debt overhang in particular while multipliers are below or close to one in low private debt states we find significant crowding in of private spending in periods of debt overhang resulting in multipliers that are much larger than one in high private debt episodes more government purchases even reduce the ratio of government debt to gross domestic product these results are robust for the type of shocks and when we control for the business cycle financial crises deleveraging episodes government debt overhang and the zero lower bound

the state dependent effects of tax shocks abstract this paper studies the state dependent effects of shocks to tax rates we begin with a stylized model in which clean analytical expressions are available the model predicts that a tax rate cut is most stimulative for output in periods in which output is relatively high the model is also used to discuss some conceptual issues related to the construction of tax multipliers we then consider a medium scale dsge model with tax rates on labor and capital income and on consumption the model is solved via a third order perturbation consonant with the intuition from the analytical model tax multipliers for all three types of tax rates vary significantly across states and are most stimulative for output in states in which output is high to evaluate the normative desirability of tax cuts as a tool to combat recessions we also study the properties of the tax cut welfare multiplier which measures the change in aggregate welfare conditional on a tax rate change in contrast to output multipliers welfare multipliers are found to be countercyclical a number of extensions and modifications are considered and our conclusions are generally robust

international fiscal spillovers a two country business cycle model featuring nominal rigidities countercyclical mark ups rule of thumb consumers and government spending reversals is used to identify inequality predictions that are robust across a range of empirically plausible parameterizations these robust inequality restrictions are imposed onto a regime change factor model for the united states and its main trade partners to estimate the international fiscal spillovers the effects of u s government spending on foreign real activity are found to be sizable and significant operating mainly by lowering real interest rates rather than boosting trade balances in contrast there seems to be only limited evidence of state dependence in the international transmission of fiscal policy

optimal taxation without state contingent debt in an economy studied by lucas and stokey tax rates inherit the serial correlation structure of government expenditures belying barro s earlier result that taxes should be a random walk for any stochastic process of government expenditures to recover a version of barro s random walk tax smoothing outcome we modify lucas and stokey s economy to permit only risk free debt having only risk free debt confronts the ramsey planner with additional constraints on equilibrium allocations beyond one imposed by lucas and stokey s assumption of complete markets the ramsey outcome blends features of barro s model with lucas and stokey s in our model the contemporaneous effects of exogenous government expenditures on the government deficit and taxes resemble those in lucas and stokey s model but incomplete markets put a near unit root component into government debt and taxes an outcome like barro s however we show that without ad hoc limits on the government s asset holdings outcomes can diverge in importa

government solvency and financial markets dynamic panel estimates for the european monetary union abstract we assess government solvency in the european monetary union emu controlling for the interaction of fiscal policy with financial markets we find a positive interaction reflecting market based pressures for fiscal improvement and significant debt stabilization efforts weakened in the post emu era

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

macroeconomic effects from government purchases and taxes for u s annual data that include world war ii the estimated multiplier for temporary defense spending is 0 4 0 5 contemporaneously and 0 6 0 7 over 2 years if the change in defense spending is permanent gauged by ramey s defense news variable the multipliers are higher by 0 1 0 2 since all estimated multipliers are significantly less than 1 greater spending crowds out other components of gdp particularly investment the lack of good instruments prevents estimation of reliable multipliers for nondefense purchases multipliers in the literature of two or more likely reflect reverse causation from gdp to nondefense purchases increases in average marginal income tax rates measured by a newly constructed time series have significantly negative effects on gdp when interpreted as a tax multiplier the magnitude is around 1 1 the combination of the estimated spending and tax multipliers implies that the balanced budget multiplier for defense spending is negative we have some evidence that tax changes affect gdp mainly through substitution effects rather than wealth effects

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

fiscal policy in an unemployment crisis this paper shows that large scal multipliers arise naturally from equilibrium unemployment dynamics in response to a shock that brings the economy into a liquidity trap an expansion in government spending increases output and causes a fall in the unemployment rate since movements in unemployment are persistent the eects of current spending linger into the future leading to an enduring rise in income as an enduring rise in income boosts private demand even a temporary increase in government spending sets in motion a virtuous employment spending spiral with a large associated multiplier this transmission mechanism contrasts with the conventional view in which scal policy may be ecacious only under a prolonged and committed rise in government spending which engineers a spiral of increasing ination

equilibria under monetary and fiscal policy interactions in a portfolio choice model abstract this paper studies how the presence of income taxes changes the properties of general equilibrium models with monetary and fiscal policy interactions it is found that from a global perspective the only policy regime that leads to a unique equilibrium is one where fiscal policy is active i e the fiscal theory of the price level regime in sims 1994 from a local perspective there are three regimes in particular and relative to the previous literature following leeper 1991 a new third regime exists where a passive fiscal rule combined with a passive monetary rule can still deliver determinacy where the same area of the parameter space would lead to multiple solutions if taxes were lump sum to obtain the size of the new regime the paper characterizes analytically the extent to which tax cuts are self financing and how the distortionary tax laffer curve looks near the steady state in the new regime monetary and fiscal backstops are brought into play so as to rule out off equilibrium dynamics and inflation can temporarily increase in order to increase seigniorage revenues with this flexibility the monetary policy is consistent with the real debt remaining bounded and the arithmetic that follows is monetarist and unpleasant in the sense of sargent and wallace 1981

local government spending multipliers and financial distress evidence from japanese prefectures we estimate local government spending multipliers using annual data for 47 japanese prefectures during the 1990s our main findings are as follows the average local government spending multiplier is positive and significantly different from zero but not larger than one there are large and significant differences in the output effects of different types of government expenditures transfers to firms have the highest multiplier significantly larger than one while transfers to households have the lowest multiplier significantly below zero firms financial distress has a significant negative effect on the local government spending multiplier in contrast to economic slack that has a significant positive effect

fiscal news and macroeconomic volatility abstract this paper analyzes the contribution of anticipated capital and labor tax shocks to business cycle volatility in an estimated new keynesian business cycle model while fiscal policy accounts for about 15 of output variance at business cycle frequencies this mostly derives from anticipated government spending shocks tax shocks both anticipated and unanticipated contribute little to the fluctuations of real variables however anticipated capital tax shocks do explain a sizable part of inflation fluctuations accounting for up to 12 of its variance in line with earlier studies news shocks in total account for about 50 of output variance further decomposing this news effect we find permanent total factor productivity news shocks to be most important when looking at the federal level instead of total government the importance of anticipated tax and spending shocks significantly increases suggesting that fiscal policy at the subnational level typically counteracts the effects of federal fiscal policy shocks

chronicle of a war foretold the macroeconomic effects of anticipated defence spending shocks we identify us defense news shocks as shocks that best explain future movements in defense spending over a ve year horizon and are orthogonal to current defense spending our identied shocks are strongly correlated with the ramey 2011 news shocks but explain a larger share of macroeconomic uctuations and have signicant demand eects fiscal news induces signicant and persistent increases in output consumption investment hours and the interest rate standard dsge models fail to produce such a pattern we propose a sticky price model with distortionary taxation variable capital utilization capital adjustment costs and rule of thumb consumers that replicates the empirical ndings

spending reversals and fiscal multipliers under an interest rate peg this paper examines whether fiscal stimuli are more effective when the monetary policy is less responsive to inflation first we provide empirical evidence suggesting that in the period of u s passive monetary policy a positive government spending shock was followed over time by a spending cut second our theoretical analysis reveals that the pegged nominal interest rate is not a sufficient condition to generate a large fiscal multiplier an increase in government spending could increase the long run real interest rate if it is associated with a government spending reversal and a less responsive monetary policy consequently the response of private consumption can be negative and the government spending multiplier is not necessarily greater than 1

estimating the impact of welfare programs on agricultural output evidence from india rural welfare programs are implemented for a variety of reasons however of key importance is to understand how government spending under such programs affects local agricultural output which is a key measure of economic activity in developing economies this article estimates the local multiplicative effects of transfer spending by the government using a novel data set of state level expenditure under rural welfare programs in india using government records as narrative evidence i use the motivation to implement new programs at the national level to construct changes in transfer spending that are largely exogenous to fluctuations in agricultural output at the state level i estimate local multipliers using this narrative shock series and find government transfers to be quite consequential for local economic activity

environmental preservation and majority decisions in this paper we bring together the quasi option value literature with a majority rule community decision making scheme it is shown that the quasi option value is positive for a majority of voters if there exists a median voter who is dictatorial however the quasi option value can be negative for a majority or all community members given the standard assumptions of the literature for which the quasi option value for a single decision maker would always be positive but in some cases this leads to majority decisions in favor of the irreversible development of natural resources when future information is taken into account

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

ten years after the financial crisis what have we learned from the renaissance in fiscal research author s ramey valerie a abstract this paper takes stock of what we have learned from the renaissance in fiscal research in the ten years since the financial crisis i first discuss the new innovations in methodology and various strengths and weaknesses of the main approaches to estimating fiscal multipliers reviewing the estimates i come to the surprising conclusion that the bulk of the estimates for average spending and tax change multipliers lie in a fairly narrow range 0 6 to 1 for spending multipliers and 2 to 3 for tax change multipliers however i identify economic circumstances in which multipliers lie outside those ranges finally i review the debate on whether multipliers were higher for the 2009 obama stimulus spending in the united states or for fiscal consolidations in europe

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

procyclical and countercyclical fiscal multipliers evidence from oecd countries abstract using non linear methods we argue that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing in the case of oecd countries the problem originates in the fact that contrary to one s priors it is not always the case that government spending is going up in recessions i e acting countercyclically in almost as many cases government spending is actually going down i e acting procyclically since the economy does not respond symmetrically to government spending increases or decreases the true long run multiplier for bad times and government spending going up turns out to be 2 3 compared to 1 3 if we just distinguish between recession and expansion in extreme recessions the long run multiplier reaches 3 1

how does government spending news affect interest rates evidence from the united states abstract this study analyzes the effects of news shocks to u s government spending on interest rates especially long term interest rates and investigates the role of agents expectations in the propagation of government spending to interest rates using large bayesian vector autoregressive models with sufficient information we find that news about increases in government spending induce significant increases in both short and long term interest rates while the effects of government spending surprise shocks on interest rates are mixed and ambiguous government spending news shocks in the baseline model account for around 10 of the variance in forecast errors in long term interest rates which is much more important than government spending itself using empirical dynamic term structural models we further decompose increases in long term interest rates into changes in expectations of future monetary policy and changes in term premiums we find that an increase in the long term interest rate after a positive government spending news shock mainly reflects higher expected future short term interest rates which demonstrates the importance of the coordination between fiscal and monetary policy communication

a political economy theory of fiscal policy and unemployment this paper presents a political economy theory of fiscal policy and unemployment the underlying economic model is one in which unemployment can arise but can be mitigated by tax cuts and public spending increases such policies are fiscally costly but can be financed by issuing government debt policy decisions are made by a legislature consisting of representatives from different political districts the theory provides a positive account of the simultaneous determination of fiscal policy and unemployment the most important implication of the theory is that debt and unemployment levels should be positively correlated some evidence in support of this prediction is provided using data from a panel of developed countries

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

sweat equity in u s private business in this paper we first provide evidence that existing measures of business incomes and valuations based on widely used surveys such as the survey of consumer finances are mismeasured we then develop a theory disciplined by u s national accounts and business census data to measure net incomes and private business sweat equity which is the value of time to build customer bases client lists and other intangible assets we estimate an aggregate sweat equity value of 0 65 times gdp with little cross sectional dispersion in valuations when compared to business net incomes and large cross sectional dispersion in rates of return our estimate of sweat equity is close to the estimate of marketable fixed assets used in production by private businesses implying a high ratio of intangible to total assets we use the model to evaluate the impact of greater tax compliance of private businesses and lower tax rates on the net income of both privately held and publicly traded businesses we find larger sectoral and aggregate effects from the tax policy experiments relative to studies that abstract from private business and in particular the accumulation of sweat capital finally we show that our results are robust to including non pecuniary benefits of business ownership

intergovernmental grants as a tactical instrument empirical evidence from swedish municipalities are grants to swedish municipalities tactical in this essay i derive testable implications from a theoretical voting model and test these on a panel of 255 swedish municipalities 1981 1995 in order to decide which regions that are politically powerful both election results and survey data from the swedish election studies are used the results although somewhat ambiguous support the hypothesis that intergovernmental grants are used in order to win votes

are government spending multipliers greater during periods of slack evidence from 20th century historical data a key question that has arisen during recent debates is whether government spending multipliers are larger during periods of slack some researchers and policymakers have argued that while government spending multipliers are estimated to be modest on average they might become greater during times when resources are underutilized auerbach and gorodnichenko 2012 forthcoming henceforth ag test this hypothesis and find larger multipliers dur

austerity and private debt this study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness in particular fiscal consolidations lead to severe contractions when implemented in high private debt states contrary fiscal consolidations have no significant effect on economic activity when private debt is low these results are robust to alternative definitions of private debt overhang the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang i show that deterioration in household balance sheets is important to understand private debt dependent effects of austerity

mafia and public spending evidence on the fiscal multiplier from a quasi experiment a law issued to combat political corruption and mafia infiltration of city councils in italy has resulted in episodes of large unanticipated temporary contractions in local public spending using these episodes as instruments we estimate the output multiplier of spending cuts at provincial level controlling for national monetary and fiscal policy and holding the tax burden of local residents constant to be 1 5 assuming that lagged spending is exogenous to current output brings the estimate of the overall multiplier up to 1 9 these results suggest that local spending adjustment may be quite consequential for local activity jel d72 e62 h71 k42 the widespread resort to fiscal stimulus at the onset of the global crisis and more recently the emerging need to consolidate deficits in response to rising fiscal imbalances have revitalized the empirical debate on the transmission of fiscal policy the multiplier while the literature has mostly focused on aggregate effects at a national level several recent contributions reviewed below have called attention to the local dimension this shift in focus is motivated by specific policy questions combined with the opportunity to exploit institutional information to address econometric issues in identification 1

the effects of government spending on real exchange rates evidence from military spending panel data abstract using panel data on military spending for 125 countries we document new facts about the effects of changes in government purchases on the real exchange rate consumption and current accounts in both advanced and developing countries while an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries it causes real exchange rates to depreciate and decreases consumption in advanced countries the current account decreases in both groups of countries these findings are not consistent with standard international business cycle models we discuss potential sources of the differences between advanced and developing countries in the responses to spending shocks

tax multipliers pitfalls in measurement and identification abstract to analyze the pitfalls in measuring and identifying tax shocks we build a novel value added tax rate dataset for the period 1980 2009 the problem of identification i e changes in tax policy not triggered by output fluctuations is clearly disentangled from the problem of measurement i e finding a tax policy variable under the direct control of policymakers on the identification front our results favor the use of narratives a la romer and romer 2010 on the measurement front our findings support the use of tax rates as the true measure of tax policy as opposed to revenue based measures such as cyclically adjusted revenues

option value under income and price uncertainty abstract we present a rigorous examination of the sign of option value under income and price uncertainty we state and prove three theorems on the sign of option value when preferences are state independent if income is uncertain the sign of option value is opposite the sign of the income elasticity of the good in question the analysis of price uncertainty is in two parts one covers the case of own price uncertainty and the other the case where the price of some other good is uncertain in both cases the sign of option value is generally ambiguous

non linear effects of tax changes on output the role of the initial level of taxation this paper estimates the effect of worldwide tax changes on output following the narrative approach developed for the united states by romer and romer 2010 the analysis uses a novel dataset on value added taxes for 51 countries 21 industrial and 30 developing for the period 1970 2014 to identify 96 tax changes it then uses contemporaneous economic records to classify such changes as endogenous or exogenous to current or prospective economic conditions in line with theoretical distortionary and disincentive based arguments and using only exogenous tax changes the main finding is that the effect of tax changes on output is highly non linear the tax multiplier is essentially zero under relatively low moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase based on a global sample these novel non linear findings suggest that the recent consensus pointing to large negative tax multipliers in industrial countries particularly in europe e g alesina favero and giavazzi 2015 i is not a robust empirical regularity and ii is mainly driven by high initial tax rates in these countries the paper also shows that the bias introduced by misidentification of tax shocks critically depends on the procyclical or countercyclical nature of endogenous tax changes the relevance of the arguments is evaluated both for the novel global sample and for romer and romer s u s dataset

the effects of public spending externalities abstract we conduct a positive analysis on the effects of externalities produced by government spending to this effect we estimate using u s data an rbc model with two salient features first we allow government consumption to directly affect the marginal utility of consumption second we allow public capital to shift the productivity of private factors we provide an identification analysis that supports the strategy adopted for estimating the parameters governing these two channels on one hand private and government consumption are robustly estimated to be substitute goods because of substitutability labor supply reacts little to a government consumption shock so the estimated output multiplier is much lower than in models with separabilities on the other hand our results point towards public investment being unproductive

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

what do british historical data tell us about government spending multipliers british data from the early 1700s through world war i reflect the results of numerous high quality natural experiments of government spending britain frequently participated in wars increasing military spending massively wartime distortions were relatively limited because the government generally adopted tax smoothing policy and rarely implemented interventions government spending multiplier estimates are low or negative and significantly below unity this paper finds no evidence that the multiplier was higher in the slack state than in the normal state jel e32 e62

worth the hype the effect of g20 summits on global financial markets abstract in the wake of the global financial crisis the g20 has become the most important forum of global governance and cooperation largely replacing the once powerful g7 against this background this paper looks at g20 meetings at ministerial and leaders level to see whether they had an impact on global financial markets to assess their impact we run an event study and we look at equity returns bond yields and measures of market risk such as implied volatility skewness and kurtosis between 2007 and 2013 our main finding is that g20 summits have not had a strong consistent and durable effect on any of the markets that we consider suggesting that the information and decision content of g20 summits is of limited relevance for market participants

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

fiscal multipliers in recessions standard business cycle models have difficulties generating large state dependent fiscal multipliers employing a model of costly financial intermediation based on curdia woodford we show that fiscal multipliers can be strongly state dependent fiscal expansions during recessions may lead to multiplier values exceeding two while similar expansions during economic booms would produce values falling short of unity this pattern obtains if the spread the financial friction is more sensitive to fiscal policy during recessions than during expansions a feature that is present in the data our results are consistent with recent empirical work documenting the state contingency of multipliers

a fiscal stimulus and jobless recovery we analyze the effects of a government spending expansion in a dynamic stochastic general equilibrium model with mortensen pissarides labor market frictions deep habits in private and public consumption investment adjustment costs a constant elasticity of substitution ces production function and adjustments in employment at both intensive and extensive margins the combination of deep habits and ces technology is crucial the presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery

local and aggregate fiscal policy multipliers abstract using a newly constructed panel of state level defense contracts this paper studies the effect of defense spending on the u s macroeconomy summing observations across states we estimate aggregate income and employment multipliers comparing these to local multipliers estimated with the panel provides evidence that local multiplier estimates may be reliable indicators of fiscal policy s aggregate effects furthermore evidence of small positive spillovers is found across several specifications we estimate income and employment multipliers between zero and 0 5 this result is reconciled with the greater than one multipliers found in nakamura and steinsson 2014 by analyzing the korean war years impact on the estimation

capital taxation during the u s great depression previous studies of the u s great depression find that increased government spending and taxation contributed little to either the dramatic downturn or the slow recovery these studies include only one type of capital taxation a business profits tax the contribution is much greater when the analysis includes other types of capital taxes a general equilibrium model extended to include taxes on dividends property capital stock excess profits and undistributed profits predicts patterns of output investment and hours worked that are more like those in the 1930s than found in earlier studies the greatest effects come from the increased taxes on corporate dividends and undistributed profits jel codes e13 e32 h25 copyright 2012 oxford university press

output spillovers from fiscal policy in this paper we estimate the cross country spillover effects of government purchases on output for a large number of oecd countries following the methodology in auerbach and gorodnichenko 2012a b we allow these multipliers to vary smoothly according to the state of the economy and use real time forecast data to purge policy innovations of their predictable components we also consider the responses of other key macroeconomic variables our findings suggest that cross country spillovers have an important impact and also confirm those of our earlier papers that fiscal shocks have a larger impact when the affected country is in recession

the output effect of fiscal consolidation plans abstract we show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks simulation of fiscal plans adopted by 16 oecd countries over a 30 year period supports the hypothesis that the effects of consolidations depend on their design fiscal adjustments based upon spending cuts are much less costly in terms of output losses than tax based ones and have especially low output costs when they consist of permanent rather than stop and go changes in taxes and spending the difference between tax based and spending based adjustments appears not to be explained by accompanying policies including monetary policy it is mainly due to the different responses of business confidence and private investment

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

payroll taxes social insurance and business cycles payroll taxes represent a major distortionary influence of governments on labor markets this paper examines the role of time varying payroll taxes and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance when the latter is only imperfectly related to search effort a balanced social insurance budget induces countercyclical payroll taxation renders gross wages more rigid over the cycle and strengthens the model s endogenous propagation mechanism for conventional calibrations the model generates a negatively sloped beveridge curve and countercyclical unemployment as well as substantial volatility and persistence of vacancies and unemployment

estimating fiscal multipliers news from a non linear world we estimate non linear vars to assess to what extent fiscal spending multipliers are countercyclical in the us we deal with the issue of non fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures this measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one but not statistically larger than those in expansions however non linearities arise when focusing on extreme events that is deep recessions versus strong expansionary periods

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

fiscal policy pricing frictions and monetary accommodation this paper empirically investigates whether the theoretical conditions for government expenditure expansions to be effective hold for the data we ask whether the necessary conditions for fiscal effectiveness are relevant on average and in special circumstances that capture features of the recent crisis fiscal policy can be an effective countercyclical tool if monetary policy accommodates the fiscal expansion if expectations about future output growth and inflation are constant and if structural relationships are invariant to the policy change recent expansions are unlikely to produce large output multipliers or have important debt or inflation effects credible deficit and debt reduction schemes can produce sizeable output multipliers fabio canova and evi pappa