managing currency pegs the combination of a fixed exchange rate and downward nominal wage rigidity creates a real rigidity in turn this real rigidity makes the economy prone to involuntary unemployment during external crises this paper presents a graphical analysis of alternative policy strategies aimed at mitigating this source of inefficiency first and second best monetary and fiscal solutions are analyzed second best solutions are prudential whereas first best solutions are not

increasing returns capital utilization and the effects of government spending abstract we show that a one sector real business cycle model with mild increasing returns to scale variable capital utilization and saddle path stability is able to produce qualitatively realistic business cycles driven solely by disturbances to government purchases due to an endogenous increase in labor productivity a positive spending shock can lead to simultaneous increases in output consumption investment employment and real wage our analysis illustrates a close relationship between this result and the recent literature that explores indeterminacy and sunspots in real business cycle models under laissez faire in particular the condition which governs the required magnitude of increasing returns for government spending shocks to generate procyclical macroeconomic effects is identical to that necessary for a laissez faire one sector real business cycle model to exhibit local indeterminacy

downward nominal wage rigidity and the case for temporary infl ation in the eurozone abstract since the onset of the great recession in peripheral europe nominal hourly wages have not fallen from the high levels they had reached during the boom years this in spite of widespread in

fiscal spillovers in the euro area this paper analyses the dynamic effects of fiscal imbalances in a given emu member state on the borrowing costs of other countries in the euro area the estimation of a multivariate multi country time series model specifically a global var or gvar using quarterly data for the emu period suggests that euro denominated government yields are strongly linked with each other however financial markets seem to be able to discriminate among different issuers consequently fiscal imbalances in italy and in other peripheral countries should be closely monitored by their emu partners and the european institutions

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

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

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

does neoclassical theory account for the effects of big fiscal shocks evidence from world war ii much debate surrounds the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks we test the theory using data from world war ii which is by far the largest fiscal shock in the history of the united states we take observed changes in fiscal policy during the war as inputs into a parameterized dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock

is there a relationship between a geocentric mind set and multinational strategy this paper operationalizes and tests relationships between a geocentric managerial mind set geographic scope and the structural and strategic characteristics of firms and industries relationships are tested using data from a survey of senior corporate international hrm managers of large u s based manufacturing multinationals an index of a geocentric mind set is found to correlate with geographic scope and various aspects of ihrm policy and practice however no relationship is found with measures of multinational strategy or organizational structure the paper concludes with a speculative hypothesis development of a geocentric mind set may relate to the information or knowledge intensity of the firm rather than its position on the strategic continuum

timing and real indeterminacy in monetary models an increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy policy is typically conducted in terms of directives for the nominal interest rate this paper uses a discrete time money in the utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy these differences arise because of the differing pricing equations for the nominal interest rate

business cycles with distorting taxes and disaggregated capital markets abstract this paper studies a neoclassical growth model to examine the linkages between distorting corporate and personal taxes and cyclical movements of aggregates such as investments in equipment and structures suppose tax variables vary stochastically and annually we solve quarterly individual and aggregate decision rules by recursive methods and quantify the dynamic impacts on aggregates from unit changes in tax structures and individual and joint tax specifications the findings suggest that corporate income tax is the major factor leading to substantial tax effects on business cycles moreover the impact of investment tax credit for equipment on disaggregated investments is equally significant

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

panel discussion price stability how should long term monetary policy be determined these comments address the question of monetary strategy as distinct from monetary tactics they are not directed at the question of what monetary policy is appropriate at the present time or of how monetary policy should be determined at any specific point as a function of prevailing conditions instead the issue i take is one that has been of increasing interest to economists in recent years what should be the long terrn objectives of the monetary authority increased interest in this issue as opposed to the issue of fine tuning the economy reflects the general intellectual consensus that has emerged on two points first what the monetary authority surely can control in the long run is the growth rate of nominal income second issues of dynamic consistency and commitment are crucial to the design of appropriate monetary policies beyond its recognition of these points my view is that most of what the academic economics community has had to say on the issue of long run monetary strategy has been tangential at best and i fear that many of the papers at this conference have not done much to improve the situation i wish to advance four propositions about monetary policy and to discuss their implications first an optimal tax theory has little or nothing to do with sensible inflation policy second positive rates of inflation are almost certainly desirable third to an important extent institutions do the work of rules and monetary rules should be avoided instead institutions should be drafted to solve time inconsistency problems fourth h j res 409 the proposed zero inflation amendment is a good idea if it is not taken too seriously or too literally but is instead viewed as a device for strengthening the independence of the federal reserve system my first proposition is that the connection between optimal tax theory and infla

can government spending increase private consumption the role of complementarity abstract it is empirically observed that private consumption responds positively to fiscal shocks we offer an explanation for this stylized fact based on the idea of complementarity between public and private consumption

tales of fiscal adjustment fiscal adjustments why they can be expansionary this paper examines the evidence on fiscal adjustments in oecd countries from the early 1960s to today the results shed light on the recently observed phenomenon of fiscal tightening that produces non keynesian expansionary effects one interpretation is that a serious fiscal tightening increases demand wealth rises when future tax burdens decline and when interest rates decline credibility is restored and inflation or default risks abate both consumption and investment rise for this effect to produce an expansion the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up another interpretation emphasizes the supply side typically a fiscal consolidation based on tax increases is short lived to be long lasting it must include cuts in public employment transfers and government wages to be politically possible such a policy must be supported by trade unions these measures result in more efficient labour markets and boost the supply side based both on statistical evidence and on a detailed analysis of ten cases of major fiscal adjustment this article provides cautious support to the supply side view without denying a more limited role for the demand side channel alberto alesina and silvia ardagna

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

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

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

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

determinants of the current account balance in the united states this article studies the role of public and private imbalances in the behaviour of the current account balance in the united states in the context of an intertemporal model the estimation evaluates the effects of public and private imbalances on the dynamics of the current account correlation coefficients support the ricardian equivalence higher budget deficit correlates with a reduction in private consumption and an increase in private savings government saving does not vary significantly with macroeconomic variables in the short or in the long run in contrast fluctuations in government investment vary significantly with a number of economic variables in the long and in the short run accordingly fluctuations in the budget deficit are likely to be driven by fluctuations in public investment in contrast to government savings private savings vary significantly with macro variables in the long and in the short run fluctuations in private investment appear less evident compared to that in privat

the dominant borrower syndrome abstractthe financing channel of a fiscal stimulus matters for the size and the sign of the fiscal multiplier we develop a general equilibrium model where a fiscal stimulus is partially bank funded and the government becomes the dominant borrower from banks relative to entrepreneurs this leads to a negative impact on credit spreads investment and a contraction in output we support our story with a structural vector autoregression for a sample of developing countries featuring the dominant borrower syndrome

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

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 fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

the impact of government debt on private consumption in oecd countries abstract this paper establishes a non linear relationship between private consumption and government debt in oecd countries with high government debt a fiscal expansion is partly crowded out by a fall in private consumption in contrast in low debt countries private consumption is insensitive to changes in government debt thus fiscal policy is less effective in stabilising business cycle fluctuations at higher levels of government debt

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

future fiscal and budgetary shocks abstract we study the effects of future tax and budgetary shocks in a non monetary and possibly non ricardian economy an unanticipated temporary labor tax cut to be effective on a given future date a delayed debt bomb causes at once a drop in the unit value placed on the firms business asset the customer with the result that share prices the hourly wage and employment drop in tandem this paradox of reduced activity through announcement of future stimulus does not hinge on an upward jump of long interest rates a future tax rate cut lacking a sunset provision has the same negative effects

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

old age government transfers and the crowding out of private gifts the70 and aboveprogram for the rural elderly in mexico old age public transfers and remittances

solar power investment in north africa reducing perceived risks abstract climate protection targets for mid century imply a need to scale up european renewable power production to a level that may exceed the available land area within europe s borders one attractive solution from a cost and feasibility perspective is the development of large scale concentrating solar power plants in north africa and the middle east however these developments are seen by many people as risky in terms of both european energy security and in terms of the risks faced by project developers in this paper we focus on the latter of theses issues first we examine the risks that project developers are most concerned about and identify these as being associated not with terrorism and rogue state behavior but rather with corruption and inefficient and unpredictable bureaucracies second we identify a range of policy approaches that can reduce these risks either by mitigating their consequences or by seeking to eliminate their underlying causes third we investigate the financial benefits of taking such steps to reduce or eliminate investment risks we find the potential savings to european electricity consumers to exceed 200 billion

individual organizational work and environmental influences on expatriate turnover tendencies an empirical study foreign postings for executives are costly undertakings for multinational corporations especially when they fail yet little research has been done on the causes of expatriate turnover this 155 expatriate survey assesses individual organizational work and environmental influences on both internal and external turnover tendencies it was found that job autonomy and material life satisfaction were key predictors for both internal and external turnover tendencies only for organizational turnover did job autonomy supersede material life satisfaction as the lead predictor of turnover tendencies american expatriates attach much importance to maintaining living standards in postings to foreign locations

anticipated fiscal policy and adaptive learning abstract the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations is considered agents are assumed to combine limited structural knowledge with a standard adaptive learning rule these issues are analyzed using two well known set ups an endowment economy and the ramsey model in our scenario there are important deviations from both rational expectations and purely adaptive learning the approach could be applied to other frameworks

infrastructure provision and macroeconomic performance this paper studies the differences between private and government provision of infrastructure capital utilization decisions and their differential role in determining market prices for capital goods under the two regimes of infrastructure provision serve as a critical transmission mechanism for fiscal policy a subsidy to private providers of infrastructure is preferable to direct government provision irrespective of how the subsidy or expenditure is financed the case for private provision is much stronger in economies characterized by high levels of congestion the choice between private and government provision also has a crucial effect on the design of optimal fiscal policy 2011 elsevier b v all rights reserved

excludable and non excludable public inputs consequences for economic growth non excludable and excludable public inputs are introduced into an endogenous growth model we derive the equilibrium growth rate and design the optimal tax and user cost structure emphasizing the role of congestion and its consequences for the government s budget the latter comprises fee and tax revenues that are used to finance the public inputs although they may generate insufficient revenue to do so entirely we extend the model to allow for monopoly pricing of the user fee by the government most of the analysis is conducted for general production functions consistent with endogenous growth but the ces technology is also considered a vast literature has evolved emphasizing the role of public investment as a determinant of economic growth among the earliest contributions arrow and kurz 1970 is particularly significant while the seminal work of barro 1990 has been especially influential with respect to the contemporary endogenous growth literature stimulated by aschauer s 1989 findings pertaining to the high rate of return on public capital several authors have explored various aspects of the role of public capital in stimulating economic growth for example baxter and king 1993 and fisher and turnovsky 1998 examine the interaction between public and private capital in a ramsey type growth model while futagami et al 1993 perform a similar type of analysis in an endogenous growth context glomm and ravikumar 1997 analyse the growth effects of productive public spending in an overlapping generations setup extending the framework to include majority voting and alternative compositions of publicly provided goods and services they also indicate private alternatives to public provision but do not pursue this in detail cassou and lansing 1998 focus on the relationship between private and public capital showing how the evolution of the ratio between the two in the us economy since 1925 is broadly consistent with the predictions of a simple ramsey growth model they also show how the productivity slowdown in the us economy since the 1970s is more likely due to increasing tax rates than to non optimal public investment policy much of the literature including barro treats the public input as a pure public good freely available without restrictions or impediments to all agents in the economy but the public goods literature identifies many different characteristics that most public goods in fact exhibit notably the presence of rivalry and or excludability see e g cornes and sandler 1996 thus the treatment of a public

global credit supply shocks and exchange rate regimes abstract the recent global financial crisis has re emphasized the need for better understanding the relation between the type of exchange rate regime err in place and the effects of global credit supply shocks recent advances in the measurement of such shocks and their large realizations in the recent financial crisis produce a suitable quasi natural experiment for studying this relation toward this end i use err classification data for a panel of 40 emerging market economies emes to establish the following main findings output responds significantly more adversely to contractionary global credit supply shocks in the fixed err than in the non fixed err deleveraging and the fall in imports are much more severe in the fixed err and the lack of exchange rate depreciation in the fixed err is accompanied by a stronger fall in exports these results are broadly consistent with predictions from models which include both the expenditure switching channel and the balance sheet channel of exchange rate depreciation where the latter channel effectively becomes expansionary rather than contractionary as commonly thought owing to favorable effects of the expenditure switching channel on balance sheets asset side

barriers to formal saving micro and macroeconomic effects this paper examines different barriers to formal saving considering various interventions and their possible effects at microeconomic and macroeconomic levels it presents a comprehensive review of the literature based on a detailed classification of the barriers associated with supply side factors related to access to financial products and demand side barriers related to the use and frequency of use of those products the paper concludes that this classification and analysis contributes to a fuller understanding of the question of financial inclusion and how to achieve it

international transfers of managers in north american and european mnes global scale mnes require a network of managers to direct and control operations around the world managerial resources for these jobs can be managers from the headquarters country host and third countries international transfers can be for specific staffing needs for management development and for organization development the general hypothesis examined in this paper was the global scale mnes would operate in a regio or geocentric fashion with full integration of the world pool of managerial resources for all international transfers case studies were done on two north american and two european mnes in the chemicals and electronics industries world wide transfers and consequent career opportunities were found in all cases for managers from headquarters countries regional transfers and careers were possible for host and third country managers in regio centric mnes but only national careers were possible in a poly centric mne temporary transfers to world or regional headquarters for management development were found for host and third country managers but transfers for organization development were for headquarters nationals no consistent differences in uses of transfers or international careers were found between north american and european mnes

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

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

real wage cyclicality in the eurozone before and during the great recession evidence from micro data we study the response of real wages to the business cycle in eight major eurozone countries before and during the great recession average real wages are found to be acyclical but this reflects in large part the effect of changes in the composition of the labour force related to unemployment variations over the cycle using longitudinal micro data from the echp and silc panels to control for composition effects we estimate the elasticities of real wage growth to unemployment increases between 0 6 and 1 over the period 1994 2011 composition effects have been particularly large since 2008 and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011 in contrast at a constant labour force composition in terms of education and experience the figures indicate a significant decrease in average wages during the downturn particularly in countries most affected by the crisis overall there is no evidence of downward nominal wage rigidity during the great recession in most countries in our sample

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

financial crises and exchange rate policy this paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and fisherian deation the goal is to evaluate the performance of alternative exchange rate policies in sudden stop prone economies the key element of the analysis is a pecuniary externality arising from frictions in the international credit markets which creates a trade o between price

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

externality in labor supply and government spending standard business cycle models face difficulties generating i government spending multipliers exceeding unity and ii stabilizing effects of government size using a simple model with externality in labor supply we show that a sufficient degree of complementarity between aggregate and private labor supplies is key to reproducing these stylized facts

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

downward nominal wage flexibility real or measurement error this paper presents a new method to correct for measurement error in wage data and applies this method to address an old question how much downward wage flexibility is there in the united states we apply standard methods developed by bai and perron to identify structural breaks in time series data applying these methods to wage histories allows us to identify when each person experiences a change in nominal wages the length of the period of constant nominal wages is left unrestricted and is allowed to differ across individuals as are the size and direction of the nominal wage change we apply these methods to data from the survey of income and program participation the evidence we provide indicates that the probability of a cut in nominal wages is substantially overstated in data that are not corrected for measurement error

exchange rate regimes and wage comovements in a ricardian model with money we construct a ricardian model of trade with money and trade costs the model predicts that the nominal wages of the trading countries exhibit stronger positive comovements when the countries fix their bilateral exchange rates while comovements of real wages are not affected by exchange rate regimes our numerical experiments suggest that a reduction in trade costs increases both nominal and real wage comovements regardless of regimes when downward nominal wage rigidity is introduced nominal wage comovements under the fixed regime remain stronger than under the flexible regime and the difference is smaller on the shorter time horizon while a slight difference in real wage comovements between the two regimes shows up and is larger on the shorter time horizon when we consider membership in the economic and monetary union of the european union as a fixed exchange rate regime panel regression results based on data from oecd countries are broadly consistent with our model and numerical experiments

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

fiscal policy and asset prices with incomplete markets we study the simultaneous impact of fiscal policy decisions on macroeconomic activity wealth distribution and asset prices we consider a general equilibrium overlapping generations model with incomplete markets and heterogeneous agents where government debt and capital are imperfect substitutes increases in public debt lead to significant increases in the riskless rate and to a reduction in the equity premium while higher capital income tax rates lead to a higher equity premium the crowding out effects on capital and output are much higher than in models where government debt and capital are perfect substitutes which thus ignore households portfolio reallocation decisions the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

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

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

the management of the international executive compensation and benefits process scant attention has been given to the organizational locations of the various tasks that comprise the management process responsible for the international compensation and benefits program of particular international firms the organizational locations of 3 managerial tasks associated with these compensation and benefits programs are examined in this article development of policies and procedures financing and supervision and control the article examines the management of u s expatriate and third country manager programs based on the reported practices of u s based firms representing a variety of industries management and theoretical implications of the findings are discussed

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

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

the international ramifications of tax reforms supply side economics in a global economy this paper studies tax reforms in a dynamic model of a global economy calibrated to current u s and european tax policies world capital markets add consumption smoothing and income redistribution effects that alter closed economy predictions in the absence of taxes on foreign interest welfare gains of eliminating u s income taxes are enlarged by up to 34 percent at the expense of european losses caused by transitional declines in consumption and leisure and a permanent capital outflow in contrast if foreign interest is taxed the same tax reform reduces u s welfare 0 7 percent and increases european welfare 1 8 percent copyright 1998 by american economic association