the expected inflation channel of government spending in the postwar u s abstract there exist sticky price models in which the output response to a government spending change can be large if the central bank is nonresponsive to inflation according to this expected inflation channel government spending drives up expected inflation which in turn reduces the real interest rate and leads to an increase in private consumption this paper examines whether the channel was important in the post wwii u s with particular attention to the 2009 recovery act period first we show that a model calibrated to have a large output multiplier requires a large response of expected inflation to a government spending shock next we show that this large response is inconsistent with structural vector autoregression evidence from the federal reserve s passive policy period 1959 1979 then we study expected inflation measures during the recovery act period in conjunction with a panel of professional forecaster surveys a cross country comparison of bond yields and fiscal policy news announcements we show that the expected inflation response was too small to engender a large output multiplier

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

a reevaluation of the macroeconomic effects of positive trend inflation abstract to date most of the papers which have examined the effects of trend inflation on the properties of new keynesian model were based on relatively simple sticky prices dsge models and whose realism was sometimes questionable in this paper we re evaluate the macroeconomic effects of non zero trend inflation building on the model of ascari 2004 as one of the most cited papers in the literature on the effects of trend inflation we show that the omission of some important theoretical ingredients significantly distorts the results obtained to date we propose a refinement of this model by introducing two theoretical important ingredients namely investment adjustment costs and a roundabout production structure once we add these features to make the model more realistic as commonly for medium scale models we find that the standard new keynesian model without real frictions overestimates the short term macroeconomic effects of a positive trend inflation rate and underestimates those of the long term

structural transformation the mismeasurement of productivity growth and the cost disease of services if workers self select into industries based upon their relative productivity in different tasks and comparative advantage is aligned with absolute advantage then the average efficacy of a sector s workforce will be negatively correlated with its employment share this might explain the difference in the reported productivity growth of contracting goods and expanding services instrumenting with defense expenditures i find the elasticity of worker efficacy with respect to employment shares is substantially negative albeit estimated imprecisely the estimates suggest that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies jel e23 e24 h56 j24 o41 o47 one of the strongest and seemingly most accurate characterizations of the process and problems of growth in advanced economies is william baumol s cost disease of services baumol s argument begun in papers as early as 1965 and continuing to this very day e g baumol and bowen 1965 baumol 1967 baumol blackman and wolff 1985 and baumol 2012 starts from the premise that productivity growth is inherently more difficult to achieve in the production of services than in the pro

alternatives to fuelwood in african towns abstract fuelwood and charcoal are widely used by african households instead of kerosene electricity and other conventional fuels because they are cheaper in many countries consumption of fuelwood and charcoal now exceeds natural replenishment rates this has serious consequences for soil fertility especially in the countryside surrounding towns yet many attempts to encourage reforestation have failed mainly because timber grown commercially for fuelwood cannot complete with free wood from common lands when free wood is eventually exhausted there will be no escape from a sizable increase in the price of woodfuel only increases in incomes especially of the lower income groups will protect people from the unavoidable increase in the cost of cooking

nonlinear effects of mortgage spreads over the business cycle this paper provides robust evidence for the nonlinear effects of mortgage spread shocks during recessions and expansions in the united states estimating a smooth transition vector autoregression stvar model we show that mortgage spread shocks hitting in a recessionary phase create significantly deeper and more protracted declines in consumption and housing market variables in addition we provide evidence that these mortgage spread shocks could be largely interpreted as credit supply shocks in the mortgage market our empirical results imply that unconventional monetary policy such as the federal reserve s mortgage backed security purchase program would be a more effective tool for stabilizing the economy during recessions than in expansions

presidents and the u s economy an econometric exploration the us economy has performed better when the president of the united states is a democrat rather than a republican almost regardless of how one measures performance for many measures including real gdp growth our focus the performance gap is large and significant this paper asks why the answer is not found in technical time series matters nor in systematically more expansionary monetary or fiscal policy under democrats rather it appears that the democratic edge stems mainly from more benign oil shocks superior total factor productivity tfp performance a more favorable international environment and perhaps more optimistic consumer expectations about the near term future jel d72 e23 e32 e65 n12 n42 an extensive and well known literature of scholarly research documents and explores the fact that macroeconomic performance is a strong predictor of us presidential election outcomes scores of papers find that better performance boosts the vote of the incumbent s party 1 in stark contrast economists have paid scant attention to predictive power running in the opposite direction from election outcomes to subsequent macroeconomic performance the answer while hardly a secret is not nearly as widely known as it should be 2 the us economy performs much better when a democrat is president than when a republican is

a time series analysis of representative agent models of consumption andleisure choice under uncertainty this paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime separable the nonseparability of preferences accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked these cross relations are examined empirically using postwar monthly u s data on quantities real wages and the real return on the one month treasury bill the estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models several possible explanations of these discrepancies are discussed

pre announcement and timing the effects of a government expenditure shock abstract an econometric strategy to identify a pre announced fiscal policy shock is proposed i show that the reduced form innovations can be recovered by estimating a vector moving average model using the kalman filter the structural effects are identified exploiting the shock s pre announced nature which leads to potentially different signs of the responses of some endogenous variables during the announcement and after the realization of the shock i illustrate my strategy by identifying a pre announced shock to government consumption expenditures i find that the response of private consumption is significantly negative on impact rises and becomes significantly positive two quarters after the realization of the policy shock

the fiscal multiplier in a liquidity constrained new keynesian economy we study the effects of fiscal policy on the macroeconomy using a liquidity constrained new keynesian model in which government bonds are liquid and private financial assets are only partially liquid we find that the fiscal multipliers in this economic environment are large enough for fiscal policy to be highly effective in this model a bond financed fiscal expansion can stimulate output because higher public borrowing improves liquidity by increasing the proportion of liquid assets in private sector wealth

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

exchange rates and trade the case of irish exports to britain this paper examines the effect of changes in the punt sterling exchange rate on exports from ireland to britain the approach used here differs significantly from that used in most other studies in that the long run neutrality of the punt sterling exchange rate with regard to exports from ireland to britain is tested using a recently developed technique there is strong evidence that the exchange rate is neutral in the long run

separating the wheat from the chaff a disaggregate analysis of the effects of public spending in the us in this paper we undertake a systematic disaggregate analysis of the effects of government spending on economic activity in the us the level of disaggregation we consider is the highest available and is unprecedented in the empirical literature more specifically public consumption and public investment are decomposed into various subcategories which are measured at the levels of the federal defence and non defence and state and local governments for each subcategory we estimate a structural vector autoregression that identifies public spending shocks through the conditional heteroskedasticity of the structural disturbances thus relaxing the identifying restrictions commonly used in the literature our analysis reveals significant heterogeneity in the effects of public spending shocks on output both across subcategories and government levels shocks to spending on durables and structures are found to have the largest and most persistent effect on aggregate output with a peak multiplier that exceeds 1 our results also suggest that there is little association between the size of a given category of public expenditures and the magnitude of its effect on output resume separer le bon grain de l ivraie une analyse desagregee des effets des depenses publiques aux etats unis dans ce texte on entreprend une analyse desagregee des effets des depenses gouvernementales sur l activite economique aux etats unis le niveau de desagregation considere est le plus grand possible et est sans precedent dans la litterature empirique plus specifiquement la consommation et l investissement publics sont decomposes en diverses sous categories qui sont mesurees pour le gouvernement federal defense et non defense ainsi que pour les gouvernements des etats et locaux pour chaque sous categorie on estime un vecteur autoregressif structurel qui identifie les chocs de depenses publiques a travers l heteroscedastictite conditionnelle des perturbations structurelles pour ainsi rel cher les restrictions d identification communement utilisees dans la litterature l analyse revele une heterogeneite significative dans les effets des chocs de depenses publiques sur la production agregee selon les sous categories et les niveaux de gouvernement les chocs dans les depenses sur les biens durables et les structures tendent a avoir les effets les plus grands et les plus persistants sur la production agregee avec un effet multiplicateur qui excede 1 les resultats suggerent qu il y a peu de rapport entre la taille d une categorie donnee dans les depenses publiques et l ampleur de l effet sur la production agregee

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

china s macroeconomic performance and management during transition since reforms started in 1978 china has combined rapid growth with moderate price stability this paper analyzes china s macroeconomic performance over the past fifteen years with special attention to factors responsible both for the pace of economic expansion and the periodic fluctuations regarding the former the author identifies four sources of stimuli administrative decentralization high levels of fixed capital investment the elastic supply and quality of the labor force and the increasing volume of savings supplemented in recent years by a large inflow of foreign direct investment future growth with stability calls for controlling and implementing banking and fiscal reform

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

how large is the government spending multiplier evidence from world bank lending this paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers the approach relies on two features unique to many low income countries 1 borrowing from the world bank finances a substantial fraction of public spending and 2 actual spending on world bank financed projects is typically spread out over several years following the original approval of the project these two features imply that fluctuations in spending on world bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years and so are unlikely to be correlated with shocks to output in the current year world bank project level disbursement data are used to isolate the component of public spending associated with project approvals from previous years which in turn can be used to estimate government spending multipliers in a sample of 29 aid dependent low income countries the estimated multipliers are small reasonably precisely estimated and rarely significantly different from zero

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

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

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

confronting an unsolvable problem deforestation in malawi abstract in malawi the low price of firewood from customary land is a barrier to reforestation if government were to grow trees and sell them at current firewood prices subsidies would be so great that only a very small part of wood deficits could be met nor will farmers plant enough trees since many other cash crops give higher returns than firewood moreover there is no way to raise the price of firewood to levels where adequate amounts of tree planting would become economic therefore deforestation cannot be reversed under the circumstances the most important obligation is to minimize the damage done to agricultural land as trees disappear this means that all of the relatively few trees planted must fulfill a soil protection function a tree planting strategy based on these realities will be very different from a strategy that assumes the deforestation problem can be solved

fiscal policy in the aftermath of 9 11 this paper investigates the nature of u s fiscal policy in the aftermath of 9 11 we argue that the recent declines in the government surplus and tax rates cannot be accounted for by either the state of the u s economy as of 9 11 or as the typical response of fiscal policy to a large exogenous rise in military expenditures our evidence suggests that had tax rates responded in the way they normally do to a large fiscal shock aggregate output would have been lower and the surplus would not have changed by much our results do not bear directly on the desirability of the decline in tax rates or the surplus after 9 11

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

measuring the effects of fiscal policy measuring the effects of discretionary fiscal policy is both difficult and controversial as some explicit or implicit identifying assumptions need to be made to isolate exogenous and unanticipated changes in taxes and government spending studies based on structural vector autoregressions typically achieve identification by restricting the contemporaneous interaction of fiscal and non fiscal variables in a rather arbitrary way in this paper we relax those restrictions and identify fiscal policy shocks by exploiting the conditional heteroscedasticity of the structural disturbances we use this methodology to evaluate the macroeconomic effects of fiscal policy shocks in the u s before and after 1979 our results show substantive differences in the economy s response to government spending and tax shocks across the two periods importantly we find that increases in public spending are in general more effective than tax cuts in stimulating economic activity a key contribution of this study is to provide a formal test of the identifying restrictions commonly used in the literature

using stock returns to identify government spending shocks this article explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches the new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large us military contractors this strategy is used to estimate the dynamic responses of output hours consumption and real wages to a government spending shock we find that positive government spending shocks are associated with increases in output hours and consumption real wages initially decline after a government spending shock and then rise after a year we estimate the government spending multiplier associated with increases in military spending to be about 1 5 over a horizon of 5 years

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

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

government spending entry and the consumption crowding in puzzle this article documents empirically that net firm entry robustly rises after a u s government spending expansion we use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding in after positive expenditure shocks endogenous entry models typically fail to generate the observed joint increase in consumption and entry model features that dampen the wealth effect such as rule of thumb households or complementarity between labor and consumption in preferences tend to reduce entry we show that utility or productivity enhancing public spending can reconcile the model with our documented fact and performs well empirically

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

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

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

declining tree stocks in african countries abstract the paper first discusses evidence of the loss of tree stocks in farming regions of sub saharan african countries and the associated ecological changes taking place the second part discusses the economic merits and limitations of two forms of public investment in afforestation i in forestry management and plantation programs with special reference to watershed and shelterbelt plantings and ii in various forms of support research extension and nurseries for the development of agro or farm forestry in areas where tree stocks are becoming seriously depleted the ecological and economic benefits would be significant for both types of investment shelterbelt and watershed plantings have the advantage of having well defined effects but are limited in scope by their relatively large budgetary and labor requirements it is widely acknowledged that they would need to be complemented by agro forestry development programs by involving the farmers themselves in tree planting and stabilization of soils the development of agro forestry practices in africa would offer prospects of a major increase in afforestation rates at significantly lower budgetary costs per hectare of farmland protected however the risks and difficulties of obtaining a good farmer response are not small and success would depend on economic policies that were far more favorable towards investment in agriculture and natural resources than they have been so far in the region

labor markets and institutions in economic development new developments in development in the 1980 s contravened several widely held tenets about how labor markets and other institutional arrangements affect the performance of low income countries if you believe that massive urban rural earnings differentials due to urban bias plague developia new evidence will ease your concerns urban workers suffered mightily in the lost growth decade in many countries if you fear that government or union interventions in labor markets impede stabilization or structural adjustment think again countries with diverse interventions reduced real wages under the gun of economic crisis if you believe that clear property rules and privatization are necessary for rational economic behavior and transition to a market economy the decade s growth success china should challenge your priors if you fear that industrial policy is the road to disaster state interventions in taiwan korea and singapore tell a different story finally if you think that military dictatorships that suppress labor necessarily produce high income inequality the income distributions of korea and taiwan should give you pause these emerging patterns and facts run so counter to conventional views on development as to raise major doubts about the depth of our knowledge and the extent to which narrow perfect competition or political economy perspectives illuminate the growth process

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

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

government purchases reloaded informational insufficiency and heterogeneity in fiscal vars using a large bayesian var we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases we document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive structural vars and expectational vars furthermore we report heterogeneous effects of components of government purchases while aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0 7 government investment components have multipliers well above unity state and local consumption which captures investment in education and health elicits a strong response

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

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

the payoff to skill in the third industrial revolution1 is the third industrial revolution indeed driven by rising payoffs to skill this simple but important question has gone unanswered because conventional models of earnings inequality are based on exceedingly weak measurements of skill by attaching occupational skill measurements to the 1979 2010 current population surveys it becomes possible to adjudicate competing accounts of the changing returns to cognitive creative technical and social skill the well known increase in between occupation inequality is fully explained when such skills are taken into account while returns to schooling prove to be quite stable once correlated changes in workplace skills are parsed out the most important trend however is a precipitous increase in the wage payoff to synthesis critical thinking and related analytic skills the payoff to technical and creative skills often touted in discussions of the third industrial revolution is shown to be less substantial

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

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

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

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

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

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

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

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

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

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

new light and heat on forests as energy reserves many poor countries face dwindling forest resources and yet continue to rely on wood based energy the common wisdom pertaining to household consumption of woodfuels assumes that they are inferior goods much of the literature on woodfuels and alternatives presupposes a fuel income ladder where increases in per capita income will lead to woodfuel substitutes while this assumption may hold true in the long term at the level of the structural transformation within a developing economy evidence presented here for the case of madagascar suggests that in the short and medium term in very poor countries woodfuels are normal goods this implies that reliance on income gains for alleviating pressure on forests from energy consumption is neither sound environmental policy nor sensible energy policy

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

habit formation and fiscal transmission in open economies in this paper we analyze the ability of an open economy version of the neoclassical model to account for the time series evidence on fiscal policy transmission revisiting the evidence we find that i government spending raises output while inducing a simultaneous decline of investment and the current account and ii the responses of output and investment are more muted in more open economies while current account deficits tend to be larger turning to the model we explore the role of habit formation for fiscal policy transmission specifically we show that the model can account for the evidence if consumption behavior is characterized by habit formation and the terms of trade adjust endogenously

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

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