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

public employment and the business cycle we add a public employment sector to the basic search and matching model in order to study the business cycle impact of public wage and employment policies the government is assumed to follow exogenous rules for public wages and employment calibrated to match some cyclical features of us policies these features include a positive public wage premium and mildly procyclical public wages and employment we find that the presence of the public sector increases the volatility of employment and output

advertising competition in a mixed oligopoly we investigate a mixed oligopoly with misleading advertising competition we find that a welfare maximizing public enterprise always engages in misleading advertising and that an increase in the number of firms increases the profit and advertising level of each private firm

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

electoral uncertainty fiscal policy and macroeconomic fluctuations abstract in this paper we study the link between elections fiscal policy and aggregate fluctuations the setup is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re election shocks the latter are incorporated via a two party model with elections the main theoretical prediction is that forward looking incumbents with uncertain prospects of re election find it optimal to follow relatively shortsighted fiscal policies and that this hurts capital accumulation our econometric estimation using u s data finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes

cyclical effects of government s employment and goods purchases distinguishing between the goods purchase and employee compensation components of government spending is important shocks to government goods purchases and shocks to government employment have the opposite effects on private output private employment and private investment moreover with this distinction in place quantitative analysis reveals that government spending is no longer a significant driving source of the u s business cycle on the contrary the components of government spending are procyclical in the u s data primarily because of their positive responses to the output fluctuations generated by technology shocks copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

economic determinants of the nominal treasury yield curve abstract macroeconomic shocks account for most of the variability of nominal treasury yields inducing parallel shifts in the level of the yield curve we develop a new approach to identifying macroeconomic shocks that exploits model based empirical shock measures technology shocks shift yields through their effect on expected inflation and the term premium shocks to preferences for current consumption affect yields through their impact on real rates and expected inflation for both shocks the systematic reaction of monetary policy is an important transmission pathway we find little evidence that fiscal policy shocks are an important source of interest rate variability

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

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

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

bridging dsge models and the raw data abstract a method to estimate dsge models using the raw data is proposed the approach links the observables to the model counterparts via a flexible specification which does not require the model based component to be located solely at business cycle frequencies allows the non model based component to take various time series patterns and permits certain types of model misspecification applying standard data transformations induces biases in structural estimates and distortions in the policy conclusions the proposed approach recovers important model based features in selected experimental designs two widely discussed issues are used to illustrate its practical use

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

r d subsidies spillovers and privatization in mixed markets we examine the use of subsidies to research and development rd however it does not lead to the equalization of per firm output and therefore to an efficient distribution of production costs we also find that privatization of the public firm reduces r d activity and welfare in the duopoly market this result stands even when optimal r d subsidies are provided

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

monetary policy taxes and the business cycle this paper analyzes the interaction of inflation with the tax code and its contribution to aggregate fluctuations we find significant effects operating through the tax on realized nominal capital gains a tax on nominal bond income magnifies these effects our innovation is to combine monetary policy shocks with non indexed taxes in a model where the central bank implements policy using an interest rate rule monetary policy had important effects on the behavior of the business cycle before 1980 because policymakers did not exert effective control over inflation monetary policy reform around 1980 led to better control and with more stable inflation the effect of the interaction between monetary policy and the nominal capital gains tax has become negligible

mixed oligopoly subsidization and the order of firm s moves the relevance of privatization abstract a series of previous papers demonstrate that there are no consequences from privatization in a mixed oligopoly when the government uses a subsidy to ensure first best this conclusion depends upon the assumption that privatization results in a simultaneous move oligopoly if instead privatization results in a public leader becoming a private leader the optimal subsidy output and welfare are all reduced

privatization neutrality theorem revisited fjell and heywood 2004 show that privatization is not necessarily welfare neutral in mixed oligopolies under a production subsidy if firms move sequentially we find that the neutrality holds for any time structure if instead an output floor is introduced

the elusive costs and the immaterial gains of fiscal constraints we study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 us states fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways the second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place creative budget accounting may account for the results

the present value criterion and environmental taxation the suboptimality of first best decision rules this paper examines the links between environmental taxes and distortionary taxation in a dynamic model of climate change and economic growth under first best conditions labor and capital would remain untaxed and carbon dioxide emissions would be taxed at a rate equal to the present value marginal cost they impose on future society setting the discount rate equal to the marginal productivity of capital under secondbest conditions however this decision rule substantially understates optimal emissions taxes when the resulting revenues are used to provide targeted cuts in distortionary taxes conversely relatively low emissions taxes are economically justified given lump sum revenue recycling

political manipulation of a public firm s objective function abstract in the context of a government owned public firm that competes with a private firm this paper demonstrates how the government can maximize its true objective by assigning the public firm a different objective function interestingly this assigned objective function need bear no resemblance to the actual objective being sought enabling the government to disguise a politically unpopular agenda and or outside influence

regime switching debt and taxation the effects of changes to the tax rate are studied within a framework where an estimated regime switching process for the debt output ratio is embedded in a standard growth model the regime is a hidden state variable so agents face a signal extraction problem consequently agents incorporate the possibility of switching to different fiscal regimes when forming expectations over future taxes decision rules have additional nonlinearity relative to fixed regime models income allocation and the tax elasticity of investment depend on agents inference regarding the regime specifically the tax elasticity can be either positive or negative depending on whether agents perceive a tax reform as an intra regime shock or change in regime

r d versus output subsidies in mixed markets we analyse the relative welfare effects of an r d and an output subsidy in a mixed duopoly we show that an r d subsidy is beneficial for society as a whole and socially superior to an output subsidy when spillovers are sufficiently high otherwise an output subsidy is socially superior

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

welfare and optimum dynamic taxation of consumption and income abstract this paper estimates that the us could attain large welfare gains by implementing an optimal ramsey tax policy that taxes consumption and income it is also found that the welfare implications associated with taxing consumption are quantitatively more important than those associated with dynamically taxing income indeed replacing income taxes with a constant consumption tax leads to a welfare gain that is only slightly lower than that attained by a dynamic policy that taxes consumption and income in computing these welfare gains careful attention is given to the dynamic path of tax rates and the transitional dynamics associated with how the economy responds to a new tax policy

discretionary tax changes and the macroeconomy new narrative evidence from the united kingdom abstract this paper provides new estimates of the macroeconomic effects of tax changes using a new narrative dataset for the united kingdom identification is achieved by isolating exogenous tax policy changes using the romer and romer narrative strategy i find that a 1 percent cut in taxes increases gdp by 0 6 percent on impact and 2 5 percent over three years the findings are remarkably similar to romer and romer narrative estimates for the united states reinforcing the view that tax changes have powerful and persistent effects exogenous tax changes are also shown to have contributed to important episodes in the uk business cycle jel e23 e32 e62 h20 h61

endogenous business cycle propagation and the persistence problem the role of labor market frictions contrasting sharply with a recent trend in dsge modeling we propose a business cycle model where frictions and shocks are chosen with parsimony the model emphasizes a few labor market frictions and shocks to monetary policy and technology the model estimated from u s quarterly postwar data accounts well for important differences in the serial correlation of the growth rates of aggregate quantities the size of aggregate fluctuations and key comovements including the correlation between hours and labor productivity despite its simplicity the model offers an answer to the persistence problem chari et al 2000 that does not rely on multiple frictions and adjustment lags or ad hoc backward looking components we conclude modern dsge models need not embed large batteries of frictions and shocks to account for the salient features of postwar business cycles

dissecting the dynamics of the us trade balance in an estimated equilibrium model in an estimated two country dsge model we find that efficiency shocks specific to investment account for more than half of the forecast variance of cyclical fluctuations in the us trade balance both domestic and foreign investment specific shocks have a substantial impact on the variability of the imbalance total factor productivity shocks do not matter for the variance and even lead to procyclicality in the trade balance

optimal discretionary monetary policy in a micro founded model with a zero lower bound on nominal interest rate abstract this paper investigates optimal discretionary monetary policy under the zero lower bound on the nominal interest rate zlb in the case of a distorted steady state due to monopoly and taxation solving a fully nonlinear micro founded fnl model using a global method i find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particularly adverse demand shock this occurs because inflation and nominal interest rates are higher on average making the zlb less likely to bind and causing the economy to escape from the zlb sooner however the social planner would choose the optimal inflation rate of approximately zero the result emerges because the unconditional benefit of avoiding the zlb is not big enough to offset the cost of higher relative price dispersion when inflation is significantly positive in addition i show that the conventional linear quadratic lq method is inaccurate in the case of a sufficiently distorted steady state

welfare costs of inflation in a dynamic economy with search unemployment abstract we present a monetary general equilibrium model with labor market frictions in the form of search unemployment which is calibrated for the us economy interestingly both employment and output may even increase with the rate of inflation depending on the elasticity of labor supply considering the transition dynamics following a change in the monetary policy the optimal quarterly inflation rate is found to amount to approximately 0 6 in the benchmark case a reduction of the inflation rate from its current level to its optimal value only results in small welfare gains equal to 0 08 of total consumption

quantifying tax effects under policy foresight abstract studies of tax effects make the conventional information assumption that changes in period t taxes become known at t legislative lags however imply that news arrives before tax changes take place under policy foreknowledge the conventional information structure is therefore misspecified simulations of a standard neoclassical growth model suggest that foresight of only one quarter can distort substantially the estimates of tax effects obtained under the no foresight assumption also it is crucial to model capital and labor taxes separately anticipated changes in these two tax policies have opposite effects on consumption investment labor and output before policy realization

tax analysis in a real business cycle model on measuring harberger triangles and okun gaps abstract a tax distorted real business cycle model is parameterized calibrated and solved numerically in an attempt to measure the size of harberger triangles relative to okun gaps in particular the model constructed is used to study quantitatively the impact of various distortional government tax and subsidy schemes it is shown that the government can use tax policy to stabilize cyclical fluctuations and this is done for the economy being studied the benefits of implementing such a stabilization policy are calculated and compared with the size of the welfare gains realized from reducing various tax distortions

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

government spending and the international business cycle in this paper the author develops a stochastic general equilibrium model of the world economy it differs from previous multicountry models in the introduction of the government sector the author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services this simple modification has a potential explanation for the low cross country correlations in private consumption and output and the countercyclical trade balances that are observed empirically

mixed oligopoly cost reducing research and development and privatisation abstract we develop a mixed oligopoly model to examine the role of r d subsidies and evaluate the welfare effects of privatisation in solving the oligopoly model we propose a novel use of aggregative games techniques our analysis reveals that privatisation reduces the optimal r d subsidy furthermore privatisation improves social welfare but only when the number of firms is sufficiently large implementing solely a subsidy to r d does not lead to a privatisation neutrality theorem or irrelevance result

privatization and efficiency in a differentiated industry we consider a market in which a public firm competes against private ones and ask what happens when the public firm is privatized in the short run privatization is harmful because prices rise the disciplinary role of the public firm is lost in the long run privatization leads to further entry the net effect is beneficial if consumer preference for variety is not too weak a sufficient statistic for the social surplus to be higher in the long run is that the public firm makes a loss this suggests that profitable firms should not necessarily be privatized

implementation cycles investment and growth we develop a model of intrinsic cycles driven by the decentralized behavior of entrepreneurs and firms making continuous divisible improvements in their productivity we show that when the introduction of productivity improvements is endogenous implementation cycles arise even in the presence of reversible investment and consumption smoothing the implied cyclical equilibrium is unique within its class and shares several features in common with actual business cycles in particular its predictions are qualitatively consistent with the joint behavior of the investment rate and tobin s q during u s recessions

the economic crisis from a neoclassical perspective abstract this paper assesses the 2007 2009 recession using neoclassical business cycle theory i find that the 2007 2009 u s recession differs substantially from other postwar u s recessions and also from the 2008 recession in other countries in that lower labor input accounts for virtually all of the decline in income and output in the united states while lower productivity accounts for much of other u s recessions and the 2007 2009 recession in other countries i also find that existing classes of models including financial market imperfections models do not explain the u s recession this is because the 2007 2009 recession is almost exclusively related to what appear to be labor market distortions that drive a wedge between the marginal product of labor and the marginal rate of substitution between consumption and leisure a topic about which current classes of financial imperfection models are largely silent i discuss future avenues for developing this class of models and i consider alterna

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

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

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

can world real interest rates explain business cycles in a small open economy abstract while the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies much of the recent quantitative research that studies this mechanism concludes that it has little effect on output investment and net exports we re examine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology we begin with a small open economy business cycle model but rather than specifying the stochastic processes for the shocks and then solving and simulating the model to evaluate how well these shocks explain business cycles we use the model to back out the shocks that are consistent with the model s observable endogenous variables then we use variance decompositions to examine the importance of each shock we apply this methodology to canada and find that world real interest rate shocks can play an important role in explaining the cyclical variation in a small open economy in particular they can explain up to one third of the fluctuations in output and more than half of the fluctuations in net exports and net foreign assets

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

partial privatization in mixed duopoly abstract we investigate a quantity setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors the private firm maximizes profits while the privatized firm takes both profits and social welfare into consideration we consider how many shares the government should hold in the privatized firm we find that neither full privatization the government does not hold any shares nor full nationalization the government holds all of the shares is optimal under moderate conditions

price or quantity the strategic choice of subsidized firms in a mixed duopoly this paper investigates the endogenous choice of the strategic variable price or quantity taken in a mixed duopoly by a public and a private firm prior to market competition while matsumura and ogawa 2012 in a standard mixed duopoly find that price is the unique equilibrium we show that by introducing firm subsidization in the same setting quantity can constitute a dominant strategy equilibrium

structural reforms and technological behaviour abstract the opening up to foreign competition the deregulation of a vast array of markets and the privatization of public sector firms have been inducing major changes in the structure and behaviour of the latin american economies the aim of this paper is to describe some of these changes and to identify the new patterns of firm behavior the new institutional environment and the new policy agenda gradually emerging in the region in the field of science and technology as a result of recent trade liberalization and market deregulation efforts

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

game theoretic models of mixed oligopoly abstract in this paper we review various models that have been proposed for the study of mixed oligopoly that is markets in which private and public firm compete on equal basis using only market instruments

laffer strikes again dynamic scoring of capital taxes abstract we set up a neoclassical growth model extended by a corporate sector an investment and finance decision of firms and a set of taxes on capital income we provide analytical dynamic scoring of taxes on corporate income dividends capital gains other private capital income and depreciation allowances and identify the intricate ways through which capital taxation affects tax revenue in general equilibrium we then calibrate the model for the us and explore quantitatively the revenue effects from capital taxation we take adjustment dynamics after a tax change explicitly into account and compare with steady state effects we find among other results a self financing degree of corporate tax cuts of about 70 90 and a very flat laffer curve for all capital taxes as well as for tax depreciation allowances results are strongest for the tax on capital gains the model predicts for the us that total tax revenue increases by about 0 3 1 2 after abolishment of the tax

information variables for monetary policy in an estimated structural model of the euro area a small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy the estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities objectives and the information content of two indicator variables monetary aggregates and real unit labour costs the results highlight a significant policy concern about interest rate smoothing and inflation almost no concern for output gap stabilization emerges regarding indicator variables unit labour costs provide information on potential output that is helpful for stabilization policy no useful information role emerges for monetary aggregates

mixed oligopoly privatization and strategic trade policy this paper investigates the effects of privatization in the presence of strategic trade policies within an international mixed oligopoly serving a single market if the government uses a domestic production subsidy then welfare is always increased with privatization while the optimal subsidy falls if the government uses an import tariff privatization increases welfare over much of the parameter space the optimal tariff however may rise or fall in recent years many countries around the world are privatizing their state owned industries at the same time many of these countries are also showing remarkable changes in their economic policies toward international trade on many occasions tariffs are significantly altered and domestic production subsidies are substantially reduced for example russia has privatized its aircraft industry and doubled its tariff on imported aircraft colombia has privatized its stateowned automobile maker colombia automotriz and reduced the import tariffs on foreign made cars in argentina the government is pursuing a policy of selective privatization and subsequent reduction of subsidies in western europe countries such as germany and spain have privatized their major airlines lufthansa and iberia respectively and significantly reduced subsidies what is the connection between privatization and strategic trade policies does privatization require a welfare maximizing government to alter trade barriers the objective of this paper is to answer these questions by investigating the interaction between privatization and strategic trade policies the effects of privatization are typically analyzed in the context of mixed oligopoly models where state owned welfare maximizing public firms interact with profit maximizing private firms 1 we investigate the interaction between privatization and strategic trade policies by incorporating strategic trade instruments in an international mixed oligopoly model specifically we consider two strategic trade instruments an import tariff and a domestic production subsidy the government chooses the optimal level of tariff or subsidy to maximize domestic welfare for each trade instrument we primarily focus on two questions first does privatization increase

is the political business cycle for real abstract this paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models we augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities first that on average the economy expands early under democratic presidents and contracts early under republican presidents second that presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms the model generates both of these features that conform to u s post world war ii data

debt nonneutrality policy interactions and macroeconomic stability we study the consequences of non neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky assuming transaction services of government bonds ricardian equivalence fails because public debt has a negative impact on its marginal rate of return and thus on private savings stability of equilibrium sequences requires a stationary evolution of real public debt which steers inflation expectations and rules out endogenous fluctuations under anti inflationary monetary policy regimes macroeconomic fluctuations tend to decrease with the share of tax financing which justifies tight debt constraints in particular a balanced budget policy stabilizes the economy under cost push shocks such that output and inflation variances can be lower than in a corresponding case where debt is neutral

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 welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

on the construction of marginal federal personal and social security tax rates in the u s abstract in this article i correct and extend my earlier series on marginal federal personal income tax rates i also construct a measure of the marginal social security tax rate and add this to the income tax rate to obtain a measure of the effective marginal tax rate on income due to federal taxes finally i compare my series on marginal income tax rates and its method of construction with those of barro and sahasakul

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

mixed oligopoly privatization and subsidization abstract this paper demonstrates three effects of domestic production subsidies in a mixed oligopoly industry regarding privatization and efficiency first if subsidies are used before and after privatization welfare is unchanged by privatization second if subsidies are used only before privatization then privatization always lowers welfare regardless of the number of private firms in the industry third the subsidy contributes to overall efficiency in a mixed oligopoly due to cost distribution effects

r d competition between public and private sectors abstract we investigate a mixed market where a welfare maximizing public research institute competes against profit maximizing private firms we investigate r d competition by using a standard model of patent races where each firm chooses both its innovation size and r d expenditure we find that the innovation size r d expenditure chosen by the public institute is too small too large from the viewpoint of social welfare respectively and so the government should control the public institute appropriately we also discuss the welfare implications of privatization of public research institutes

wage wars institutional politics wpa wages and the struggle for u s social policy the wpa was the most expensive and politically prominent u s social program of the 1930s and the generosity and very nature of u s social policy in its formative years was contested through the wpa in this article an institutional politics theory of social policy is elaborated that incorporates the influence of both institutional conditions and political actors institutions mediate the influence of political actors specifically it is argued that underdemocratized political systems and patronage oriented party systems dampen the cause of generous social spending and the impact of those struggling for it state actors left party regimes and social movements spur social policy but only under favorable institutional conditions to appraise this theory key senate roll call votes on wpa wage rates are examined as well as state level variations in wpa wages at the end of the 1930s the analyses which include multiple regression and qualitative comparative analysis support the theory

fiscal spending shocks endogenous government spending and real business cycles abstract we analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures to maximize the welfare of the representative private agent we characterize the optimal response of endogenous spending to shocks to technology and to military expenditures comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the u s data the model captures the qualitative features of the relative volatilities of the components of government spending quite well but predicts too high correlations between the components of government spending and output

short run fiscal policy welfare redistribution and aggregate effects in the short and long run abstract this paper quantifies the effects of two short run fiscal policies a temporary tax cut and rebate transfer that are intended to stimulate economic activities a reduction in income taxation provides immediate incentives to work and save more raising aggregate output and consumption a temporary rebate is mostly saved and increases consumption marginally both policies improve the overall welfare of households and the rebate policy benefits especially low income households in the long run however the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and lower output and consumption causing welfare to deteriorate

wealth distribution and optimal inheritance taxation in life cycle economies with intergenerational transfers we introduce intergenerational transfers into a general equilihrium life cycle model in order to explain observed levels of wealth heterogeneity in our overlapping generations model heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren furthermore agents face stochastic employment opportunities the model is calibrated with regard to the characteristics of the us economy our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv the introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution preliminary versions of this paper have been presented at conference on intergenerational transfers taxes and the distribution of wealth in uppsala 1999 and the econoinetric societv european meetirig in santiago dc compostela 1999 we would like to thank michael kaganovieli john laitner james smith frank stafford and carl cristian von weizsacker for comments on earlier versions of the paper all remaining errors are ours

dynamic scoring a back of the envelope guide abstract this paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth the model yields simple expressions for the steady state feedback effect of a tax cut the feedback is surprisingly large for standard parameter values half of a capital tax cut is self financing the paper considers various generalizations of the basic model including elastic labor supply general production technologies departures from infinite horizons and non neoclassical production settings it also examines how the steady state results are modified when one considers the transition path to the steady state

regulating innovative activity abstract without spillovers and under the winner take all hypothesis there is overinvestment in r d in a non cooperative equilibrium due to duplication of effort we show that a public firm can represent an effective instrument in the hands of a policymaker to mitigate such a problem in particular it is proved that in a mixed duopoly i each firm invests less than in a private duopoly and ii although the expected time of innovation is postponed social welfare is higher than in a private duopoly