labor supply responses and welfare effects of tax reforms during the late 1 980s and early 1 990s taxation of wage income has undergone a change towards a proportional tax regime in many countries our analysis shows that gradual tax reforms in norway may have removed some of the distortions on worker behavior moreover we find that proportional taxes may reduce the inequality in the distribution of disposable household income yet when the distributional consequences are related to changes in individual welfare we find that rich households may benefit far more than households at the other tail of the income distribution because they earn more without any significant increase in effort

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

unemployment with observable aggregate shocks a general equilibrium model of optimal employment contracts is developed where firms have better information about labor s marginal product than workers it is optimal for the wage to be tied to the level of employment to prevent the firm from falsely stating that the marginal product is low and cutting the wage it is shown that an observed aggregate shock that leads to an interindustry shift in labor demand and that would have no effect on total employment under symmetric information leads to a reduction in employment when firms and workers have asymmetric information

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

labour supply in italy an empirical analysis of joint household decisions with taxes and quantity constraints this study applies an econometric framework which allows for complex non convex budget sets highly non linear labour supply curves and imperfect markets with institutional constraints a married couple s version of the model is estimated on italian microdata the empirical results show that male labour supply is rather inelastic while labour supply among females especially participation is considerably more elastic the elasticities depend strongly on household income the largest elasticities are found for females living in poor households the results of the tax simulations suggest that there are only modest labour supply responses from replacing the 1987 system by proportional taxes copyright 1999 john wiley sons ltd

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

the estimation of a joint wage hours labor supply model in this paper the standard cross sectional static model of labor supply is modified to make the wage endogenous and a joint wage hours model is estimated the econometric technique addresses the non linearity of the budget constraint by approximating the constraint by a series of discrete points the results show that the budget constraint is indeed nonlinear that hours affect the wage quadratically that true wage elasticities are lower as a result and that the model fits the hours distribution much better than the standard tobit model

the rise and fall of the dollar a comment if readers of this paper were to ask themselves what the rates for the world s major currencies are likely to be in say three years time it is doubtful whether they would have much confidence in their predictions even conditional forecasts on the basis of particular assumptions about policy would be hard to make this state of ignorance and our admission of it owes much to the recent behaviour of the dollar which as koromzay llewellyn and potter so usefully discuss largely defies explanation in terms of conventional economic analysis even when full use is made of the luxury of hindsight that ignorance itself may however have important policy implications these comments relate to both the theoretical and policy aspects of the paper though the focus as in the paper itself is on the implications for policy a general difficulty may be stated at the outset the paper reasonably enough concentrates on the dollar in the i98os but though this is much the most dramatic illustration of the difficulties in explaining exchange rate movements it is not the only one thus ideally an explanation of dollar strength should be consistent with explanations given for previous dollar weakness see for example bliss i986 and for other recent major movements of exchange rates such as the apparently similar gravity defying rise in sterling in the late i970s and early 198os where theory and empirical analysis fail explanations tend to become ad hoc with a danger that false or over strong policy conclusions are drawn even a casual comparison with the united kingdom raises some questions as well as supporting the general thrust of this paper thus the monetary fiscal mix in the united kingdom was very different from that in the united states according to oecd figures the structural budget moved to surplus by some 6 of gdp between i979 and i982 which must at least suggest a cautious approach to some of the simpler stories that trace the rise in the dollar to united states fiscal irresponsibility the united states experience which as the paper demonstrates does not accord with conventional models of the overshootingtype also throws doubt in the other direction about applications of that kind of model to the united kingdom for example by buiter and miller i98i of course the united kingdom s situation was special because of north sea oil but if north sea oil was important the obvious reason would be due to its effect on relative current account positions which does not seem to work well for the united states and in any case most estimates suggest that oil should account for only a part of the rise in sterling see powell and horton i985 for a survey and as in the united states empirical models were notably unsuccessful in predicting the exchange rate haache and townend i98i

the level and distribution of global household wealth the level of average household wealth in all countries is estimated via the determinants of assets and debts for 39 countries which have balance sheet or survey data the distribution of wealth in all countries is inferred from information on the pattern of wealth ownership for 20 countries covering 59 of world population combining the level and distribution figures suggests that median global wealth was ppp 8 635 in the year 2000 and that ppp 518 361 was needed to belong to the top percentile the top decile owned 71 of world wealth and the global gini value was 0 802

the effect of income taxation on the labor supply of married men in sweden abstract this paper presents labor supply functions estimated on a sample of prime age swedish males the model used takes account of the nonlinear character of individuals budget sets caused by the progressive income tax it also allows preferences to vary between individuals calculations with the estimated functions using a partial equilibrium framework indicate a sizeable effect of the income tax on hours of work the average expected deadweight loss of the income tax is found to be approximately 20 percent of tax revenue

nonlinear taxes and labor supply abstract many empirical studies where hours of work for males are regressed on the gross wage rate or a crudely corrected gross wage rate have yielded wage rate coefficients close to zero it is often believed that this implies that taxes do not affect labor supply in the present paper i show that this is a misinterpretation of the empirical results and that estimated wage rate coefficients often are close to zero because taxes affect labor supply i also show how the use of a proportional tax as an approximation of a nonlinear tax schedule can yield incorrect results when an estimated labor supply function is used to calculate the effect of taxes

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

unemployment and female labour supply the definition of labour force participation in the standard labour supply model stands in sharp contrast to that used in compiling the labour force statistics in the labour supply models only those supplying positive hours of work are considered to be labour force participants on the other hand participation in the labour force statistics is often defined to include not only those supplying positive hours but also those actively searching for work this paper is an attempt to reconcile these concepts by allowing unemployed workers to enter a generalisation of the standard labour supply model this turns out to be a convenient way to enter demand side factors directly into the determination of an individual s labour market position the model is applied with some success to the working behaviour of married women in the uk family expenditure survey

international effects of stock market dispersion we study the extent to which stock market dispersion is related to unemployment and output growth for 16 countries over 20 years using panel vector auto regressions and panel dynamic regressions we find increases in stock market dispersion across industries to induce future increases in unemployment and future decreases in industrial production ip growth moreover the responses of unemployment and ip growth following a positive shock to stock market dispersion are persistent and are robust to various controls sample periods and estimation methods our article provides cross country evidence in support of the hypothesis that shifts in demand across industries negatively affect employment

sectoral shifts unemployment and vacancies an empirical analysis for the netherlands abstract in this paper the correlation between sectoral dispersion of employment growth and unemployment is analyzed empirical results for the netherlands indicate that fluctuations in unemployment are due to aggregate demand factors with no substantial influence of shifts in sectoral demand

a head to head comparison of augmented wealth in germany and the united states we examine the composition of augmented household wealth i e the sum of net worth and pension wealth in the united states and germany pension wealth makes up a considerable portion of household wealth of about 48 percent in the united states and 61 percent in germany when pension wealth is included in household wealth the gini coefficient falls from 0 889 to 0 700 in the united states and from 0 755 to 0 508 in germany if the wealth shares in germany were the same as in the united states this would lead to a 12 6 percent increase in the gini coefficient in the augmented wealth distribution in germany

heterogeneous consumers and fiscal policy shocks this paper studies empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to di er depending on their individual characteristics we use data from the consumption expenditure survey cex to estimate individual level impulse responses as well as multipliers for government spending the main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their income and age levels in particular the wealthiest individuals tend to behave according to the predictions of standard rbc models whereas the poorest individuals tend to behave according to standard is lm non ricardian models most likely due to credit constraints furthermore government spending policy shocks tend to decrease consumption inequality forthcoming in journal of money credit and banking

imperfect mobility of labor across sectors and fiscal transmission abstract our paper investigates the sectoral effects of government spending shocks and highlights the role of labor mobility our var evidence for sixteen oecd countries reveals that a shock to government consumption by 1 of gdp increases non traded value added by 0 7 of gdp and generates a decline in traded value added the value added share of non tradables rises by 0 35 of gdp thus implying that the reallocation of resources accounts for 50 of the sectoral fiscal multiplier consistently our estimates show that the non traded sector is highly intensive in the government spending shock and experiences a labor inflow the shift of hours worked toward the non traded sector is however subject to mobility costs which vary across countries when we explore quantitatively the sectoral effects of a shock to government consumption that is highly intensive in non traded goods we find that the model can replicate the magnitude of the rise in the share of non tradables we document empirically once we allow for both labor mobility and capital installation costs financial openness also matters as it further biases the demand shock toward non tradables to account for the cross country dispersion in the responses of sectoral shares we estimate empirically we have to let the degree of labor mobility vary across countries

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

quantity rationing and concavity in a flexible household labor supply model in the first part of this paper the authors derive explicit expressions for the direct utility functions conditional demand equations and concavity conditions in both price income and quantity space for the demand system introduced by hausman and ruud 1984 these results are then used in an empirical static family labor supply model in which kinked budget constraints and unemployment benefits are taken into account for both spouses imposition of concavity is necessary for consistent estimation and the concavity constraint appears to be binding copyright 1990 by mit press

structural models of family labor supply a discrete choice approach a static neoclassical structural model is presented explaining labor supply of both spouses in two adult households in the netherlands family preferences are described with a direct translog utility function with the husbands leisure the wifes leisure and family income as its arguments we assume that the choice set of each family is finite account is taken of the dutch tax and benefits system we allow for hours restrictions and random preferences and account for unobserved wages of nonworkers the models are estimated using smooth simulated maximum likelihood results based upon dutch cross section data from 1987 are illustrated by confidence intervals for elasticities and by several policy simulations excerpt

a comparison between economic systems with an application to transition abstract this paper develops a general equilibrium theory of endogenous firm and class formation under non contractibility with heterogeneous individuals a collectivist economy a private ownership economy and a mixed economy are compared on the basis of identical economic fundamentals methodological symmetry each economic system generates specific inefficiencies so that none dominates the others in general the main trade off is between the welfare loss associated with risk taking in the private ownership economy and the informational problems in the collectivist economy we then use this framework to study the political economy of transition between economic systems and provide detailed welfare results

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

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

what is a liquidity crisis abstract this paper investigates the role of liquidity it is argued that the firm holds money as a guarantee of solvency to its contractual partners by holding liquid assets the firm is able to increase the efficiency of its contracts variations in the opportunity cost of holding money cause variations in the firm s demand for money and consequent variations in the frequency of contract failures this mechanism is suggested as an alternative explanation of the observed relationship between money income and interest rates

labor contracts with voluntary quits this paper considers labor contracts between the risk neutral firm and risk averse workers with heterogeneous outside opportunities alternative wages which become known to the worker after a costly on the job search in the case of a deterministic alternative wage self selection over a menu of contract wages would achieve the first best contract if the alternative wages are stochastic the second best contract emerges as a trade off between productive efficiency and risk sharing workers who voluntarily search are fewer and workers who search are less likely to quit if the search effort is not monitored even fewer workers search

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

an equilibrium model of quits under optimal contracting abstract this article develops an equilibrium model of quits in a labor market and examines the effect of contracting under asymmetric information when compared with symmetric information and noncontractual base lines we demonstrate that quits increase in periods of high output without postulating exogenous price rigidity

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

asymmetric information bargaining and unemployment fluctuations we construct a dynamic general equilibrium model where wages are determined by bilateral bargaining and the firm has superior information the asymmetry of information introduces unemployment fluctuations and dynamic wage sluggishness because the information of the firm is only revealed gradually wages fall slowly in response to a negative shock and unemployment exhibits additional persistence it is shown that high job destruction will generally be followed by a period of higher than average job destruction that the presence of common shocks introduces an informational externality and that bargaining is an inefficient method of wage determination as compared to implicit contracts

human capital and self enforcing contracts this essay analyzes labor contracts as a device for rearranging factor incomes over time under conditions of extreme adverse selection in particular the lack of verifiable public information about future compensation prevents finitely lived workers from borrowing against their earnings specific human capital is used as an incentive to implement intertemporal self enforcing contracts between workers and firms after proposing a necessary and sufficient condition for the existence of such contracts the resulting equilibrium earnings profiles are explored along with the effects of imperfections in the credit market on the way workers choose jobs and allocate time between current production and training copyright 1988 by the editors of the scandinavian journal of economics

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

managerial incentives investment and aggregate implications scale effects we explore a managerial model of investment behaviour in which an incentive problem arises because one input factor managerial effort is not publicly observed we show that an optimal incentive contract leads to investment levels which are below first best in low states and that this phenomenon can account for greater cyclical variability in aggregate production and investment from the perspective of incentive scheme design a special feature of the model is that screening takes place over two variables investment and output rather than one as is customary

a model of female labour supply in the presence of hours restrictions abstract we develop a discrete choice model of female labour supply in finland using a data set constructed by merging the 1980 labour force survey and housing and population census this contains observations on the perceived incidence of constraints in the labour market and allows us to identify the effects of such constraints on observed labour supply approximately one in five women appears to be seriously constrained in her choice of hours of work our estimated model implies that the response of labour supply to variation in tax and wage rates is rather small

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 multipliers in the 21st century fiscal multipliers appear to vary greatly over time and space based on vars for a large number of countries we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers in an attempt to account for this finding we develop a life cycle overlapping generations economy with uninsurable labor market risk we calibrate our model to match key characteristics of a number of oecd economies including the distribution of wages and wealth social security taxes and government debt and study how a fiscal multiplier depends on various country characteristics we find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also to the average wealth level in the economy these findings together help us generate a cross country pattern of multipliers that is quite similar to that in the data

the age specific burdens of short run fluctuations in government spending abstract we study the impact of government spending shocks on the distribution of income and wealth between cohorts and the associated welfare effects in a dynamic stochastic overlapping generations model with two types of households ricardian households and rule of thumb consumers we demonstrate that an unexpected increase in government spending decreases income and wealth inequality in contrast to the conventional wisdom that the financing of government expenditures by debt rather than taxes especially burdens young generations we find that debt financing also harms ricardian households during retirement the crucial element in our analysis is a wealth effect that results from the decline in the price of capital due to higher government debt

the effect of taxes on labor supply in italy in this research we estimate a neoclassical household labor supply model for married individuals incorporating the main elements of the tax system using italian microdata we found that while the labor supply of women is rather elastic with respect to wages and income variation men s labor supply is inelastic with respect to variation in both we use these results to measure the behavioral and welfare effects of alternative tax systems the actual tax system where the unit of taxation is the individual joint family taxation and a flat tax the simulation results show that relative to the actual system the joint tax implies a higher average social cost but is more equally distributed the flat tax implies a lower social cost but is less equally distributed

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