are consumption taxes really better than income taxes abstract we use political equilibrium theory and the neoclassical growth model to compare consumption and income tax systems if government outlays are used for redistribution through transfers then steady state equilibria in societies that use income taxes are not necessarily worse in welfare terms and may even be better income taxes are attractive precisely because they are more distortionary since this implies low equilibrium transfer levels we also find that switching tax systems typically does not benefit the median voter moreover a change from income to consumption taxes may make everybody worse off

is the asymptotic speed of convergence a good proxy for the transitional growth path this paper compares transitional dynamics in two alternative r d non scale growth models one with endogenous human capital and the other without we show that focusing only on the asymptotic speed of convergence to discriminate between the two models performance can be misleading our analysis suggests that a careful study of the entire adjustment paths predicted by alternative growth models starting far away from the balanced growth path is required in order to successfully discriminate among them

growth income inequality and fiscal policy what are the relevant trade offs we develop an endogenous growth model with elastic labor supply in which agents differ in their initial endowments of physical capital in this context the growth rate and the distribution of income are jointly determined we then examine the distributional impact of different ways of financing an investment subsidy policies aimed at increasing the growth rate result in a more unequal distribution of pre tax income consistent with the positive correlation between income inequality and growth observed in the recent empirical literature however there is no conflict between efficiency and equity if inequality is measured in terms of the distribution of welfare

the carnegie conjecture some empirical evidence this paper examines tax return generated data on the labor force behavior of people before and after they receive inheritances the results are consistent with andrew carnegie s century old assertion that large inheritances decrease a person s labor force participation for example a single person who receives an inheritance of about 150 000 is roughly four times more likely to leave the labor force than a person with an inheritance below 25 000 additional albeit weaker evidence suggests that large inheritances depress labor supply even when participation is unaltered warren kendall heir to an insurance company fortune says he s worth about 5 million and has an income of about oh 300 and some thousand a year h e has never held a job or wanted to going down to sea in cruise ships is his full time pursuit he estimates that he has taken about 250 cruises over the past couple of decades spending at least 50 percent to 70 percent of the year afloat morgenthaler 1991 p al

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

do central banks respond to exchange rate movements a structural investigation abstract we estimate a small scale structural general equilibrium model of a small open economy using bayesian methods our main focus is the conduct of monetary policy in australia canada new zealand and the uk we consider generic taylor type rules where the monetary authority reacts in response to output inflation and exchange rate movements we perform posterior odds tests to investigate the hypothesis whether central banks do target exchange rates the main result of this paper is that the central banks of australia and new zealand do not whereas the bank of canada and the bank of england do include the nominal exchange rate in its policy rule this result is robust for various specification of the policy rule we also find that terms of trade movements do not contribute significantly to domestic business cycles

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

transitional dynamics and the distribution of wealth in a neoclassical growth model abstract the evolution of the personal distribution of wealth in a standard neoclassical growth model is studied if the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite finite at some all positive non negative consumption level s then the average saving propensity of agents is positively negatively related to their wealth if the economy is decaying toward the steady state these relationships are reversed if wealth and average saving propensity are positively negatively related the distribution of current period wealth lorenz dominates is lorenz dominated by next period s distribution of wealth

who wins from emissions trading evidence from california researchers and environmental policy advocates have raised questions regarding the distributional impacts of emissions trading programs a k a cap and trade while previous research has been careful to identify the causal effect of emissions trading on emissions reductions fowlie et al in am econ rev 102 2 965 993 2012 hereafter fhm we argue that existing estimates of differential impacts on demographic groups have relied on unrealistic assumptions regarding pollution dispersion in this paper we estimate the emissions reduction due to the reclaim cap and trade program in southern california following the identification strategy of fhm but we relax the assumption of uniform dispersion surrounding point sources we model the transport of effluents using a state of the science dispersion model to determine the areas impacted by emissions from each source importantly conditional on race and ethnicity we find that higher income areas receive larger reductions in pollution under cap and trade furthermore conditional on income or poverty rates we find that blacks benefit while hispanics lose relative to whites under reclaim

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

transaction costs in pollution markets an empirical study this paper studies a market in pol lution permits launched in los angeles in 1994 this tradable permit market has been projected to lead to substantial cost savings due to the flex ibility it provides firms in terms of compliance with environmental regulation this paper shows that transaction costs can play an important role in the initial years of the program the transac tion cost variables have been defined to include search costs and information costs these costs are significant in explaining non participation of some firms in the market the study also draws policy implications for the development of future emissions trading programs jel q28 q25

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

when to pollute when to abate intertemporal permit use in the los angeles nox market we study intertemporal trading of nitrogen oxides permits in southern california s reclaim program we model reclaim s distinct intertemporal features two overlapping permit cycles and two overlapping compliance cycles in the model competitive equilibrium is cost effective and firms have an incentive to delay abatement from 1994 to 2006 reclaim facilities traded intertemporally by using permits of the opposite cycle we test two theoretical propositions delayed abatement and trading across cycles with a difference in differences estimator and show weak though inconclusive support of the theory the theoretical and empirical results are relevant to cap and trade programs with potential for overlapping permit cycles jel q58

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

how misleading is linearization evaluating the dynamics of the neoclassical growth model this paper investigates the reliability of employing linearization to evaluate the dynamic adjustments to changes in productive government spending in a ramsey growth model if government expenditure is introduced as a flow and the dynamic adjustment is fast linearization may yield a reasonably good approximation to the true dynamics even for fairly large policy shocks if government expenditure assumes the form of a stock leading to more sluggish adjustment linearization may yield misleading predictions these errors occur at the beginning of the transition and weigh heavily in welfare calculations the implications for temporary shocks and the speed of convergence are also considered

fiscal policy elastic labor supply and endogenous growth abstract endogenizing labor supply leads to fundamental changes in the equilibrium structure of the ak growth model the balanced growth equilibrium can be described in terms of two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labor supply for fiscal policy are analyzed three issues are addressed first the effects of various distortionary tax changes and government expenditure changes on the equilibrium growth leisure employment tradeoff are analyzed second optimal fiscal policy is characterized finally the formal analysis is supplemented by numerical results focusing particularly on the quantitative welfare implications

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

infrastructure and inequality abstract we develop a model in which public capital is both an engine of growth and a determinant of the distributions of wealth income and welfare government investment increases wealth inequality over time regardless of its financing the time path of income inequality is however highly sensitive to financing policies and is often characterized by sharp intertemporal tradeoffs with income inequality declining in the short run but increasing in the long run public investment generates a positive correlation between growth and income inequality along the transition path but their short run and long run relationship depends critically on i how externalities impinge on allocation decisions ii financing policies and iii the time period of consideration finally these policies also generate sharp trade offs between average welfare and its distribution with government investment improving average welfare but also increasing its dispersion our results are obtained numerically but extensive sensitivity analysis confirms their robustness across key parameter values

equilibrium dynamics in a two sector model with taxes in this paper we are concerned with the equilibrium dynamics of a two sector model of endogenous growth with distortionary taxes we show that for certain parameters values and tax schemes every equilibrium orbit except the steady state solution is non interior i e there are times in which one of the sectors is inactive this analysis confirms that in multisector models the set of easily checkable universal conditions that can guarantee the interiority of equilibrium solutions is rather limited journal of economic literature classification numbers d90 e22

heterogeneity in capital and skills in a neoclassical stochastic growth model does a heterogeneous agents version of a neoclassical model with labor leisure choice replicate the distributions of consumption and working hours observed in the cross sectional data does incorporating heterogeneity enhance the aggregate performance of the representative agent model we address these questions in a complete market model economy with two sources of heterogeneity initial endowments and non acquired skills we find positive answers to both questions

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

distributional dynamics in a neoclassical growth model the role of elastic labor supply we examine the evolution of the distributions of wealth and income in a ramsey model in which agents differ in their initial capital endowment and where the labor supply is endogenous the assumption that the utility function is homogeneous implies that the macroeconomic equilibrium is independent of the distribution of wealth and allows us to characterize fully income and wealth dynamics we find that although the dynamics of the distribution of wealth are similar under fixed and flexible labor those of the income distribution are not in response to a structural change income inequality may move in opposite ways depending on whether or not the labor supply is fixed

multi sector model of tradable emission permits this paper presents a multi sector model of tradable emission permits which includes oligopolistic and perfectly competitive industries the firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market specifically we examine the effects of the initial permit allocation on the equilibrium outcomes focusing on the interaction among these product and permit markets it is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm under certain conditions raising a clean less polluting firm s share of the initial permits can lead to reductions in both the product and permit prices we discuss criteria for the socially optimal allocation of initial permits considering the trade off between production inefficiency and consumer benefit

what do emissions markets deliver and to whom evidence from southern california s nox trading program a perceived advantage of cap and trade programs over more prescriptive environmental regulation is that enhanced compliance flexibility and cost effectiveness can make more stringent emissions reductions politically feasible however increased compliance flexibility can also result in an inequitable distribution of pollution we investigate these issues in the context of southern california s reclaim program we match facilities in reclaim with similar california facilities also located in non attainment areas our results indicate that emissions fell approximately 24 percent on average at reclaim facilities relative to our counterfactual furthermore we find that observed changes in emissions do not vary significantly with neighborhood demographic characteristics

exploring the income distribution business cycle dynamics abstract we document the business cycle behavior of the us income distribution and explore the extent to which unemployment spells and cyclically moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model we conclude i that partitioning the population into five types subject to type specific employment processes seems to be enough to account for most aspects of the us income distribution business cycle dynamics ii that the role played by cyclically moving factor shares is small and iii that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for

growth and unemployment short run and long run tradeoffs abstract we consider the role of search unemployment and wage bargaining in determining the relationship between growth and unemployment while the long run tradeoffs between unemployment and growth are weak the short run tradeoffs are much stronger their comovement varies along the transitional path and depends upon the underlying structural change the consequences of the growth unemployment nexus for fiscal policy are addressed the analysis provides insights into the debate regarding the appropriate fiscal policy in light of the increased debt following the initial response to the recent financial crisis our analysis strongly supports an increase in government investment as the appropriate fiscal policy

how fast do economics converge the conventional approach to estimating how fast economics converge examines the cross economy relationship between the growth rate of per capita output over some time period and its initial level this approach produces consistent estimates only under highly restrictive assumptions which are violated by the data the paper develops an alternative approach that produces consistent estimates under weak assumptions this approach yields estimates substantially larger than those reported in the literature and also sufficiently large to be broadly consistent with the predictions of neoclassical growth theory

transitional restricted linkage between emissions trading schemes linkages between emissions trading systems are deemed an important element of the future climate policy landscape they are however difficult to agree and remain few and far between temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted full linkage we compare the relative merits of several link restrictions in this respect namely quantitative transfer limits border taxes on transfers exchange and discount rates and unilateral linkage to this end we develop a simple model to have a unifying framework which in conjunction with lessons we draw from real world experiences serves as a basis for a broader policy oriented discussion while quantitative restrictions seem to be the natural route to full linkage they can lead to uncertain distributional effects and weaken price signals these aspects are mitigated under a border permit tax but this policy seems harder to implement exchange rates have potential to adjust for programmes stringencies and raise ambition over time but can be challenging to select as experience corroborates unilateral linkage can be a convenient approach

on the efficiency and equity trade off abstract the concept of policy measures that create a potential pareto improvement has dominated normative economics the use of this concept in welfare economics relies on the availability of discriminatory lump sum transfers in such a way that the implementation of the efficient policy measure leads to a pareto movement in the economy however most studies of efficient policies preclude by assumption the existence of lump sum taxation this paper proposes in economies amenable to gorman aggregation one simple methodology to rank alternative allocations in terms of their distributional implications in a world with no lump sum transfers this methodology is simple because it is independent of the distribution of characteristics in the economy then for a specific policy measure it can be easily identified whether it implies an equity efficiency trade off the method is illustrated by analyzing the effects on inequality of the elimination of capital taxation the reduction of the inflation tax and the liberalization of capital movements in a small open economy

the transitional dynamics of fiscal policy long run capital accumulation and growth this paper analyzes the effects of fiscal policies in a non scale growing economy with public and private capital the equilibrium dynamics are characterized and we contrast the dynamic effects of government expenditure on investment and expenditure on consumption under four alternative modes of tax financing most of our attention focuses on the numerical simulations of a calibrated economy the results emphasize the lengthy transition periods which implies that policies have sizeable level effects leading to substantial welfare effects even though long run growth rates are unaffected the paper highlights the intertemporal dimensions of fiscal policy and the tradeoffs these involve for economic performance especially growth and welfare

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

flexibility premium of emissions permits abstract investments in abatement technology are often characterised by irreversibility and significant implementation lags whereas emissions permits can be traded at any time as such abatement and emissions permit trading systems are hardly perfect substitutes we formally study the flexibility of emissions permits and propose a unified framework to rationalise the impact of both investment divestment lags and irreversibility in relation to the price of emissions permits using option pricing concepts we reformulate the technology adoption problem in terms of the technology s characteristics irreversibility and implementation lags and offer a conceptual quantification of the flexibility premium of emissions permits

taxation and income distribution dynamics in a neoclassical growth model we examine how changes in tax policies affect the dynamics of the distributions of wealth and income in a ramsey model in which agents differ in their initial capital endowment the endogeneity of the labor supply plays a crucial role in determining inequality as tax changes that affect hours of work will affect the distribution of wealth and income reinforcing or offsetting the direct redistributive impact of taxes our results indicate that tax policies that reduce the labor supply are associated with lower output but also with a more equal distribution of after tax income we illustrate these effects by examining the impact of recent tax changes observed in the us and in european economies

optimal trading ratios for pollution permit markets abstract we demonstrate a novel method for improving the efficiency of pollution permit markets by optimizing the exchange of emissions through trade under full information it is optimal for emissions to exchange according to the ratio of marginal damages under asymmetric information we derive necessary conditions for the marginal damage trading ratios to be optimal illustrate that the marginal damage trading ratios are generally not optimal and show how to improve efficiency using optimal trading ratios we calculate the optimal trading ratios for a global carbon market the gains from using optimal trading ratios rather than marginal damage trading ratios range from substantial to trivial which suggests the need for careful consideration of asymmetric information when designing permit markets