economic deregulation days of reckoning for microeconomists economic deregulation of american industry is one of the most important experiments in economic policy of our time 1 in 1977 17 percent of u s gnp was produced by fully regulated industries 2 by 1988 following ten years of partial and complete economic deregulation of large parts of the transportation communications energy and financial industries that total had been cut significantly to 6 6 percent of gnp 3 the political forces behind the decision to change the market conditions under which roughly 600 billion of u s output is produced were strong and varied but according to political scientists martha derthick and paul quirk 1985 p 36 deregulation would never have occurred if economists especially microeconomists had not generally supported it through their research 4 in retrospect it is fair to ask were microeconomists able to develop a theoretical and empirical framework to explain regulation and its effects and to form predictions of deregulation s effects were they able to predict the actual effects of deregulation this paper surveys the evidence to address these questions and of

generational accounting a meaningful way to evaluate fiscal policy this paper illustrates the technique of generational accounting a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting the authors illustrate why there is no correct measure of the deficit and how generational accounting estimating the fiscal burdens current policy places on different generations provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit their calculations suggest that despite recent changes u s fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive

on taxation in a two sector endogenous growth model with endogenous labor supply abstract this paper studies the effects of taxation on long run growth in a two sector endogenous growth model with i physical capital as an input in the education sector and ii leisure as an additional argument in the utility function income taxation the same rate applies for capital and labor income reduces the growth rate the same is true if only labor income is taxed however if only capital income is taxed the positive effect of an increase in total non leisure time may dominate the direct negative effect implying that capital taxation increases the long run growth rate

college scholarship rules and private saving this paper examines the effect of existing college scholarship rules on the incentive to save the analysis shows that families that are eligible for college scholarships face education tax rates on capital income of between 22 percent and 47 percent in addition to regular federal and state income taxes the empirical analysis developed here based on the 1986 survey of consumer finances implies that these high tax rates have a powerful adverse effect on the accumulation of financial assets copyright 1995 by american economic association

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

increasing the capital income tax may lead to faster growth this paper shows that under rather mild conditions higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth government expenditures are financed with labor income taxes as well as capital income taxes since capital income accrues to the old taxing it reliefs the tax burden on the young and leaves them with more income out of which to save we argue that savings are sufficiently interest inelastic so that higher savings and therefore higher growth result the basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well the reasoning is similar to feldstein 1978 auerbach 1979 and in particular jones and manuelli 1992 but in contrast to the conventional wisdom about the effect of capital income taxation as say in lucas 1990

competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

union retreat and regional economic performance the uk experience monastiriotis v 2007 union retreat and regional economic performance the uk experience regional studies 41 1 14 a panel of regional data is used to investigate the impact the well documented decline in trade unionism in the uk had on the economic performance of its regions the analysis departs from the traditional firm level and cross sectional analyses and looks at the economy wide effects of unionism the findings provide evidence in line with theory that predicts that unions will increase wages and unemployment but they also indicate that unionism is positively related to productivity and incomes although in all cases the effects are non linear it is concluded that unionism is not necessarily a burden for the economy so long that the beneficial wage productivity effects outweigh the negative effects on employment monastiriotis v 2007 le declin syndical et la performance economique regionale etude de cas du r u regional studies 41 1 14 on emploie des donnees regionales provenant d un

temporary income taxes and consumer spending both economic theory and casual empirical observation of the u s economy suggest that spending propensities from temporary tax changes are smaller than those from permanent ones but neither provides much guidance about the magnitude of this difference this paper offers new empirical estimates of this difference and finds it to be quite substantial the analysis is based on an amendment of the standard distributed lag version of the permanent income hypothesis that distinguishes temporary taxes from other income on the grounds that the former are more transitory this amendment which is broadly consistent with rational expectations leads to a nonlinear consumption function though the standard error is unavoidably large the point estimate suggests that a temporary tax change is treated as a 50 50 blend of a normal income tax change and a pure windfall over a 1 year planning horizon a temporary tax change is estimated to have only a little more than half the impact of a permanent tax change of equ

strategic eurasian natural gas market model for energy security and policy analysis formulation and application to south stream abstract the mathematical formulation of a strategic eurasian natural gas market model is presented the model represents horizontal oligopolistic relationships among producers bilateral market power between producer russia and transit ukraine countries detailed transport constraints and operation decisions over a 20 year time horizon to demonstrate the model s capabilities a financial and market analysis of the proposed south stream gas pipeline from russia via the black sea to south europe is summarized insights obtained include the following first expectations of high demand growth in europe and or transit risks do not justify the construction of the south stream pipeline because under all demand and ukraine transit interruption scenarios the net benefits to the south stream participants are negative the npv ranges from 1 9 billion bn to 7 4 bn second ukraine s perception of high transit market power vis a vis russia may trigger the construction of the otherwise unprofitable south stream project thus under ukraine s high transit market power scenario the npv of south stream ranges between 2 4 bn and 24 5 bn third we find that the south stream investment increases the efficiency of the european gas market under the following conditions i when gas demand in europe grows 2 per year up to 2030 ii when ukraine poses high transit market power or iii under a combination of severe transit risks through ukraine and low demand scenarios in europe it should be noted that the value of south stream to both its project sponsors and the market as a whole is much higher when ukraine exercises transit market power than under the high demand scenario therefore whether ukraine is likely to wield market power is crucial to the success of the south stream project because that is the only scenario in which the project yields both a positive expected npv to its sponsors and the highest value to the market as a whole

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

budgetary policy and unemployment dynamics in an olg model with collective bargaining we consider a dynamic general equilibrium model with capital accumulation and collective wage bargaining and investigate how unemployment responds to structural shocks under two stylised budgetary policies under balanced budgets tax adjustments lead to higher unemployment on impact but enable a quick recovery of employment by contrast unbalanced budgets mitigate unemployment effects on impact but dynamics are more persistent due to weaker capital accumulation and future fiscal consolidations these results are consistent with empirical evidence on a positive cross country relationship between government borrowing and unemployment persistence this paper starts out from the well known fact that many european countries have suffered from persistently high unemployment over the past two decades there is a large literature which attempts to explain this development as resulting from a combination of structural shocks and mechanisms which make the effects of any such shifts more persistent one prominent branch of this literature stresses that adverse structural shocks tend to induce a slowdown in capital accumulation which reinforces the employment losses and adds to unemployment persistence bean 1989 benassy 1997 blanchard 1997 burda 1988 caballero and hammour 1998 daveri and tabellini 2000 similarly these studies point out that when the shock is over the recovery of employment depends critically on the speed with which investments in capital respond to the new situation the purpose of this paper is to reconsider this capital shortage hypothesis by linking it explicitly to the stance of fiscal policy to see the importance of fiscal policy in this context consider a government which faces an adverse structural shock such as a drop in employment due to a wage setting shock and decides whether it should keep its budget balanced or not this decision will affect the overall structure of assets in the economy i e the mix between capital and government bonds and this mix will in turn be an important determinant of the speed with which the economy can create employment once the shock is over in particular according to the capital shortage hypothesis the recovery in terms of employment is likely to take longer under a policy which temporarily accepts structural budget deficits particularly when crowding out effects have been substantial

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

measuring permanent responses to capital gains tax changes in panel data the authors use panel data and information about differences in state tax rates to separate the effects of transitory and permanent tax rate changes on capital gains realizations behavior the estimated effect of permanent change is substantially smaller than the effect of transitory change the difference is even larger than differences between estimates from past micro data studies which have primarily measured the transitory effect and time series studies which have primarily measured the permanent effect the authors results resolve a long standing conflict between micro data and time series studies of how marginal tax rates affect capital gains realizations behavior copyright 1994 by american economic association

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

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

european union energy supply security the benefits of natural gas imports from the eastern mediterranean abstract this paper analyzes the potential of eastern mediterranean offshore natural gas discoveries to increase eu natural gas supply security it presents an overview of the status quo of eu 28 natural gas import dependency the efforts to increase energy security through various measures and the challenges to supply diversification it further provides an analysis of the energy and offshore resource sectors of egypt israel cyprus and lebanon the paper presents projections of domestic natural gas consumption needs for the years 2012 2042 and results show that potentially large quantities will be available for exports an empirical model is used to analyze the capital and transmission costs for exporting gas to europe via the east med pipeline the east med pipeline project is discussed in the broader context of other regional supply options as well as potential u s lng exports to europe the paper concludes that the east med pipeline which has been classified as a project of common interest by the eu should receive policy priority as its benefits in terms of security of supply go beyond those that can be captured in a competitive market and the positive externalities that it provides justify a security premium

monetary institutions monopolistic competition unionized labor markets and economic performance recent literature on the interactions between labor unions and monetary institutions features either a supply or a demand channel of monetary policy but not both this leads to two opposing views about the effects of central bank conservativeness we evaluate the relative merits of those conflicting views by developing a unified framework we find that i the effect of conservativeness on employment depends on unions relative aversion to unemployment versus inflation and ii for plausible values of this relative aversion and more than one union social welfare is maximized under a highly conservative central bank we also evaluate the effects of centralization of wage bargaining and product market competition on unemployment and inflation

implications of financial crisis for east asian trend growth the article sets the asian financial crisis in the context of the developmental state model of asian development and sees it as in part the downside risk of a financial liberalization that was badly handled but nevertheless appropriate as a stimulus to better productivity performance the east asian economies are shown still to have a large labour productivity gap with the leading oecd countries and substantial scope for further rapid catch up growth historical experience suggests that the policy response to the crisis is fundamental not only to immediate recovery prospects but also to realizing this remaining fast growth potential

have iras increased u s saving evidence from consumer expenditure surveys the vast majority of individual retirement account contributions represent net new saving based on evidence from the quarterly consumer expenditure surveys ces the results are based on analysis of the relationship between ira contributions and other financial asset saving the data show almost no substitution of iras for other saving estimates are based on a flexible constrained optimization model with the ira limit the principal constraint the implications of this model for saving in the absence of the ira option match very closely the actual non ira financial asset saving behavior prior to 1982 ira saving does not show up as other financial asset saving in the pre ira period

effects of tax reform on labor supply investment and saving the u s tax system received two major overhauls during the 1980s the tax cuts of 1981 and the tax reform act of 1986 supporters of both reforms argued that major changes in tax policy could boost saving investment labor supply and entrepreneurship eventually it was argued such changes could reverse the slowdown in economic growth that began in the early 1970s and spur improvements in american living standards the aim of this paper is to assess whether the goals of increased labor supply and capital formation were achieved

he who has the pipeline calls the tune russia s energy power against the background of the shale revolutions abstract russian energy policy is usually considered in the regional context in terms of its energy power capability and strength vis a vis the eu and the post soviet states this study shows that in order to understand russia s energy power even in the regional context of its relations with the eu it is necessary to consider the impact of international changes in the energy sector the oil and gas shale revolutions represent such a global factor of influence even if their consequences are not yet clear they have already become an important challenge for russian energy policy and power this policy oriented article guided by neoclassical realism analyzes what the shale revolutions mean for russia s energy policy and its power capabilities vis a vis the eu how the russian political elite perceive this development and how russia reacts to it in this context russian power capabilities look more moderate

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

life cycle savings bequest and a diminishing impact of scale on growth the present paper shows that the savings motive critically affects the size and sign of scale effects in standard endogenous growth models if the bequest motive dominates the scale effect is positive if the life cycle motive dominates the scale effect is ambiguous and may even be negative

fiscal policies capital formation and capitalism abstract this lecture examines the effect of tax policy and social security retirement benefits on capital accumulation and economic welfare the paper begins by examining how capital income taxes reduce the real return to savers and then discusses the welfare loss of capital income taxation relative to the alternatives of taxing consumption and labor income the analysis shows that capital income taxes impose a very substantial deadweight loss even if they do not alter private saving the first section of the paper also discusses the theory and empirical literature on the effect of capital income taxes on national saving the second part of the lecture deals with social security retirement benefits in 1994 the aged members of the u s population will receive cash and medical benefits that cost the government 530 billion or 16 000 per person over age 65 the likely impact of these benefits on private saving and the empirical evidence on this subject are then reviewed the second part of the paper concludes by discussing the welfare loss of unfunded social security benefits and the possibilities for alternative arrangements a final section discusses the implications of international capital flows for this analysis as capital flows become more important particularly in europe the response of government policy may be to compete for foreign capital inflows and to tax domestic savers more heavily this would lead to a smaller total volume of capital the sharp decline in the net national saving rate from more than 8 percent of gdp in the united states in the 1970s to only 4 5 percent in the 1980s and from more than 14 percent of gdp in europe in the 1970s to 9 9 percent in the 1980s may not only create lower real incomes and slower growth but may weaken capitalism itself in the united states a decade of slow growth has increased protectionist tendencies in international trade and led to a new interest in industrial policies that expand the role of government in guiding the direction of technology and of private investment in these ways the government policies that discourage saving might make the schumpeterian vision of a shift from private capitalism to a government dominated economy more likely

fiscal policy with impure intergenerational altruism recent work demonstrates that dynastic assumptions guarantee the irrelevance of redistributional policies distortionary taxes and prices the neutrality of fiscal policy ricardian equivalence is only the tip of the iceberg this paper investigates the possibility of reinstating approximate ricardian equivalence by introducing a small amount of friction in intergenerational links if ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results then friction may dissipate the effects that generate strong neutrality without significantly affecting the ricardian result however models with friction have other untenable implications and thus the theoretical case for ricardian equivalence remains tenuous copyright 1991 by the econometric society

public schooling college subsidies and growth abstract how does the mix of public education expenditures across primary and secondary k 12 education and post secondary college education influence economic growth to address this i build an overlapping generations endogenous growth model human capital is accumulated through compulsory k 12 education and through optional college education government uses tax revenue to provide quality in k 12 schooling and to subsidize college tuition when total expenditures are small all funds should provide k 12 quality when expenditures are above a critical value a positive share should subsidize tuition the share should increase with total expenditures and with the degree of complementarity of human capital accumulated through the two types of education also increased education spending is more likely to increase growth when a larger share subsidizes tuition

indicators of energy security in industrialised countries energy security has become a popular catch phrase both in the scientific arena as well as in the political discussion yet in general the applied concepts of energy security are rather vague this paper sheds some light on concepts and indicators of energy security first we conceptually discuss the issue of energy supply security and explain why it is not to handle by one science alone and what economics may contribute in order to structure the topic after providing a brief survey of existing attempts to define or measure energy security we suggest an additional dimension along which indicators of energy security may be classified ex post and ex ante indicators finally we illustrate our concept on the basis of several simplified indicators while ex post indicators are mostly based on price developments ex ante indicators are to a greater extent aimed at illustrating potential problems our illustration suggests that it is worthwhile to take into account the market structure along with the political stability of exporting countries

energy security externalities and policies abstract in this paper we review conceptual arguments and empirical evidence related to two potential sources of market failure involving energy security in doing so we consider several questions involving the distinction between externality and market inefficiency and the distinction between market failures that are amenable or not amenable to correction given our current understanding of the workings of an economy several conclusions follow from our analysis regarding the potential sources of market failure and possible remedies the problem of excess wealth transfer from exporter market power may be an issue but current knowledge of oil market behaviour is too weak to support a strong conclusion other supposed costs of oil import dependence also are not well grounded including externalities related to the vulnerability of the economy to energy price shocks

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

market opening regulation and growth in europe deregulation a political economy analysis lack of urgency explains why continental europe trails in the deregulation process yet there are lessons to be learnt from deregulation elsewhere this paper reviews the situation and focuses on the political preconditions for successful deregulation it finds a clear negative relationship between regulation and economic performance it characterizes european countries by the degree of regulation of labour and product markets and finds that the latter seems to be more important for economic performance finally it notes the importance of a proper management of the deregulation effort which may include some re regulation deregulation is more likely to succeed the more transparent the economic benefits and the more clearly stated the objectives and the time schedule kees koedijk and jeroen kremers

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

factor income taxation and growth under asymmetric information abstract this paper studies the growth effects of factor income taxation on capital and labor in an endogenous growth model with overlapping generations capital accumulation in our model takes place through credit financed investments in a market with asymmetric information between lenders and borrowers we show that in the presence of asymmetric information capital income taxation worsens the adverse selection problem in the credit market which in turn introduces an additional adverse effect on growth in so doing our analysis provides a new argument in favor of a lower higher capital labor income taxation in funding public expenditures

life expectancy schooling time retirement and growth i analyze how changes in life expectancy affect retirement age education time and growth rates of economies i set up a continuous time overlapping generations model of endogenous growth with externalities in human capital production i find that increases in life expectancy give rise to first higher retirement ages and second higher education spans a threshold level for life expectancy exists such that per capita growth rates follow an inverted u pattern i introduction in this article i analyze how changes in life expectancy may affect optimal education time retirement age and the growth rates of economies to this end i set up a continuous time overlapping generations growth model with human capital accumulation that i solve numerically the issue of the effects of the reduction in mortality rates and the resulting increases in life expectancy on economic growth rates has been recently addressed in the literature through both empirical and theoretical studies along these lines i focus on human capital acquisition and its transmission across generations as the force driving the growth rate concerning empirical studies the hypothesis that the reduction in mortality rates has caused higher levels of investment in human capital and therefore augmented growth rates is partially supported for various economies thus kalemli ozcan et al 2000 show an increase in life expectancy at birth along with an increase in average numbers of years of schooling in england they claim that after averaging across lower income countries there is apparently a connection between increases in life expectancy at birth and increases in gross secondary school enrollment that is positively connected with higher growth rates observed preliminary data from latin american and caribbean countries show that gross domestic product gdp growth is statistically associated with life expectancy for instance estimates based on data from mexico suggest that for any additional year of life expectancy there will be an additional 1 increase in gdp 15 years later see world health organization 1999 box 1 2 9 along the same lines rodriguez and sachs 1999 also find a positive effect of life expectancy on gdp growth for the case of venezuela barro and sala i martin 1995 estimate for a sample of 97 countries that a 13 year increment in life expectancy would increase the per capita growth rate by 1 4 per year they also find however some exceptions where increments in life expectancy have not resulted in higher growth even though all of them exhibited higher schooling levels in the period 1960 85 malmberg 1994 gives another exception higher growth was achieved when middle aged persons were numerous whereas increases in dependent age groups led to lower per capita growth in sweden finally some other studies find mixed evidence so that increments in life expectancy result in higher growth rates for low levels of life expectancy but in lower growth rates for high levels of life expectancy see zhang et al 2003 and references therein a common result in most theoretical studies that include some sort of human capital is that an increase in life expectancy lengthens the period needed to recover investment in human capital which translates into higher returns to individual education or human capital investment this augmented return will give rise to higher levels of investment in human capital which in turn will raise growth rates ehrlich and lui 1991 show in a three overlapping generations model how improvements in longevity lower fertility thus raising educational investment and long term growth meltzer 1995 finds that mortality reductions may favor economic growth by increasing educational investment kalemli ozcan et al 2000 show in an overlapping generations model a la blanchard that if mortality drops life expectancy increases so that an augmented life horizon to enjoy the return to human capital investment gives rise to higher schooling human capital investment although growth is not affected because the growth rate in their model is identically equal to zero

natural rate theory and oecd unemployment our mission is to examine from the perspective of the intertemporal equilibrium models of endogenous natural rate theory the huge swings in unemployment among the oecd countries in recent times we first look at the huge rise in jobless rates between the early 1970s and the early 1990s throughout the oecd in the united states a rise from about 51 per cent to 7 per cent canada from about 6 to 10 japan from 11 to 21 italy from 31 to about 71 the united kingdom from about 33 to about 9 france from about 23 to about 10 and west germany from 4 to 5 1 we then look at the developing recovery of the general unemployment rate most notably in the united kingdom and the united states amid a generally continued elevation of jobless rates among the less educated we see the mid 1990s surge of unemployment in germany france and italy as another story there are other older perspectives of course keynesians interpreted events in the 1970s and in the 1980s as signs of effective demand and effective supply shocks feldstein 1986 fitoussi and phelps 1986 malinvaud 1985 pissarides 1990 but if the natural rate was unchanged they had to explain why the subsequent disinflation was short lived why inflation even turned up in the late 1980s or early 1990s despite high unemployment lacking an endogenous natural rate keynesians could explain the durability of the slump only by positing either a permanent expectational disequilibrium or hysteresis i e non ergodicity as in phelps 1972 or a degree of persistence so great as to be empirically indistinguishable from hysteresis as the slump ran on the expectational possibility wore thin so they were down to hysteresis hicks 1974 launched a break with the keynesian monetarist perspective in the 1980s with his appeal to real frictions or rigidities if wage setting mechanisms make the real wage v sticky in the sense of lerner hence predetermined in the short run the unemployment rate u will rise in the short run in response to a shock contracting the demand wage i e a downward shift of the labour demand schedule in the 1 u v plane bruno and sachs 1985 another landmark was a bargaining model with the property that its natural unemployment rate rose in response to several much discussed shocks such as higher taxes and an energy shock reducing labour productivity layard and

taxation and growth with overlapping generations abstract this paper examines the growth effects of wage and interest income taxation in an endogenous growth model which is characterized by diminishing point in time returns in human capital producing technology and overlapping generations of two period lived individuals we show that the greater the long term learning time of individuals the more individuals inherit human capital from the previous generation we demonstrate that a flat rate wage tax stimulates economic growth while interest income taxation does not necessarily foster such growth intergenerational redistribution induces individuals to change both physical and human capital accumulation affecting the growth rate through changes in factor prices

growth and imperfect competition on factor markets increasing returns and distribution abstract although seldom modeled outside the monopolistic competition framework market incompleteness and imperfect competition are central to the new growth theories we propose here a strategic model of imperfect competition with endogenous growth and endogenous market structure where we focus on labor market issues for growth to be possible we assume increasing returns at the firm level due to heterogeneity on the labor market the market structure is not degenerate then because of increasing returns short run efficiency is maximized under monopoly and free entry implies too many firms in the market however in the long run competition can generate growth through a distribution effect whereas a monopoly leads to a zero growth steady state thus there is a trade off between static and dynamic efficiency this trade off implies the existence of a growth maximizing degree of competition in our economy

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

the dynamics of the revenue maximization market share trade off saudi arabia s oil policy in the 2014 15 price fall given its highly undiversified economic base maximizing revenues will always rank highly in saudi arabia s output decision however this objective needs to be balanced against another maintaining its share in key markets and maximizing long term revenue given the massive size of saudi arabia s reserves the trade off between these two objectives tends to change over time depending on market conditions the nature of the shock and the behaviour of other producers saudi arabia s oil policy is hence not constant we argue that the advent of us shale has made the calculus of the trade off more uncertain complicating saudi arabia s output decision using a simple game we show that under uncertainty it is always safer for the kingdom to assume that the shale oil supply is highly elastic and thus decide not to cut output but as saudi arabia learns more about this new source of supply its policy could adapt accordingly the fact that saudi arabia s oil policy could change as the trade off between revenue maximization and market share evolves and as new information to the market arrives will keep the market second guessing and will continue to shape market expectations and to influence market outcomes jel q48 government policy d43 oligopoly and other forms of market imperfection q41 demand and supply prices d81 criteria for decision making under risk and uncertainty q02 commodity markets

keeping one step ahead of the joneses status the distribution of wealth and long run growth assuming that the utility of each agent depends on its relative wealth position in the society this chapter constructs an endogenous growth model it is shown that even if the subjective discount rates differ across agents there exists a unique balanced growth equilibrium in which each agent owns a positive share of the world wealth it is also shown that if the agents are identical then an increase in savings incentives always raises the long run growth rate but if they are heterogeneous then an increase in savings incentives may lower the long run growth rate

will the european commission s policy hinder gas supplies to central and eastern european countries opal case decision abstract natural gas has become one of the most important sources of energy the liberalization of the gas sector in the last decades brought a dynamic development of the energy infrastructure in the eu thus it must be underlined that the liquidity of the gas market is dependent on the outside supplies the study examines the european commission s policy taking into consideration specifically its decision on the exemption of opal gas pipeline from eu rules the main question is what would be the long term effect of such policy in the authors opinion there are several serious doubts whether the commission has made an appropriate decision the major one concentrate on the impact of the decision which according to the commission refers only to germany and czechia gas market nevertheless an analysis of gas flow based on the entsog leads to a conclusions that decision could have a substantial influence on slovakia and poland if so under the eu provisions the investment can not be excluded form the eu rules therefore the authors will analyze step by step the commission decision and present its possible future impact on the internal energy market

factor taxation and labor supply in a dynamic one sector growth model abstract this paper studies a class of ak type growth models with factor income taxes public capital stock and labor leisure trade offs while a higher capital tax rate reduces economic growth in the short run the long term growth effect is ambiguous and remains ambiguous even if the level of tax rate is larger than the degree of government externality a higher labor income tax rate has ambiguous growth effects both in the short and long runs however if the intertemporal elasticity of substitution for labor supply is sufficiently small a higher labor tax rate always lowers economic growth in the long run despite the existence of productive government taxation

is russia building too many pipelines explaining russia s oil and gas export strategy abstract the article examines russia s entire oil and gas export network and reveals that there is a considerable surplus pipeline capacity which is likely to endure in the future it brings to attention surplus capacity as a concept that could enrich discussions on what drivers russia s energy policy abroad and how moscow enhances its energy security the article provides three explanations on russia s surplus capacity for oil and gas exports first russia s institutional setting has been conducive for a surge in new pipelines as economic considerations have played a less significant role second russia s energy pivot to asia has already contributed to a widening surplus capacity in westbound oil pipelines and it is likely to have a similar impact on gas once it starts flowing to china third russia s energy security concerns namely about minimising transit risks have played a key role in its active pipeline diplomacy and new pipeline ventures the implications of russia s surplus capacity can be significant for oil the room for manoeuvring is wide enough to allow russia abandon an entire route of its choice for gas moscow is likely to enhance its bargaining position with ukraine while gazprom acquires more flexibility to deliver gas abroad

asset bubbles and endogenous growth abstract we study the interaction between productive and nonproductive savings in economies with endogenous long run growth as in the neoclassical growth setting with overlapping generations asset bubbles can exist in an economy with endogenous growth provided that they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate here the existence conditions for bubbles reflect parameters of tastes and technology we find that bubbles when they exist retard the growth of the economy perhaps even in the long run and reduce the welfare of all generations born after the bubble appears

should continued family firms face lower taxes than other estates abstract taxes on estates and inheritances may induce heirs to discontinue family firms because firm dissolution incurs transaction costs a preferential tax treatment of transferred family businesses seems to be desirable from a macroeconomic viewpoint the support of dynastic succession however entails also a cost on the economy if firm continuation by less able heirs prevents entry into entrepreneurship here we investigate analytically and quantitatively the trade off between transaction costs saved and creative destruction prevented we find that a unique general equilibrium exists at which depending on the institutional setup low ability heirs either abandon type 1 or continue type 2 a family business a calibration of the model with german data suggests that preferential tax treatment of family firms has severe negative consequences on macroeconomic performance if it causes a threshold crossing from type 1 to type 2 equilibrium it also reveals that the descendants of less able entrepreneurs who were caused by continuation friendly tax policy to keep a family business always lose relative to their status in an economy without such a policy

generational accounting a new approach for understanding the effects of fiscal policy on saving working pa er 9107 generational accounting a new approach for understanding the effects of fiscal policy on saving by alan j auerbach jagadeesh gokhale and laurence j kotlikoff alan j auerbach is a professor of economics at the university of pennsylvania and an associate of the national bureau of economic research jagadeesh gokhale is an economist at the federal reserve bank of cleveland and laurence j kotlikoff is a professor of economics at boston university and an asso ciate of the national bureau of economic research working papers of the federal reserve bank of cleveland are preliminary materials circu lated to stimulate discussion and critical comment the views stated herein are those of the authors and not necessarily those of the federal reserve bank of cleveland or of the board of governors of the federal reserve sys tem may 1991

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

conceptualizing energy security abstract energy security 1 is one of the main targets of energy policy however the term has not been clearly defined which makes it hard to measure and difficult to balance against other policy objectives we review the multitude of definitions of energy security they can be characterized according to the sources of risk the scope of the impacts and the severity filters in the form of the speed size sustention spread singularity and sureness of impacts using a stylized case study for three european countries we illustrate how the selection of conceptual boundaries along these dimensions determines the outcome this can be avoided by more clearly separating between security of supply and other policy objectives this leads us to the definition of energy security as the continuity of energy supplies relative to demand

the governance of the european energy union efficiency effectiveness and acceptance of the winter package 2016 abstract the new governance mechanisms of the european energy policy proposed by the european commission in its winter package will redefine european energy and climate governance this contribution reviews the proposal its supporting documents and overall stakeholder positions according to the criteria of the efficiency effectiveness and acceptance of governance to assess its ability to support european energy and climate goals we find that the proposed governance amounts to a densely meshed coordination of policies between the european level and member states compared to the present governance system the enhanced mechanism can draw on significant synergies and reduce administrative costs our review of stakeholder positions reveals strong acceptance of enhanced coordination nonetheless our review identifies some potential flaws in terms of governance effectiveness the proposed structures surpass the method of open coordination they could also be seen as a case of harder soft governance in conflict with article 194 2 tfeu finally the local level is excluded

factor income taxation and growth with increasing integration of world capital markets abstract in a closed economy the infinite horizon and the overlapping generations og model prescribe diametrically opposite policies on factor taxation the former argues that the growth maximizing capital income tax rate should be set to zero whereas the latter argues that it should be set as high as possible this note investigates the issue by taking into account global capital market integration we show that the long run growth maximizing capital income tax rate in a small open og economy is decreasing as the economy s capital market is increasingly integrated with the rest of the world and will be equal to zero as prescribed in the infinite horizon model once the degree of integration becomes sufficiently high

the energy union and security of gas supply this paper discusses and contrasts the proposals for an energy union in the european union and its impact on security of gas supply based on an examination of historical east west gas trade and by revisiting energy security concepts the paper analyzes how problems with dependency on energy imports can be reduced the paper discusses how the positions of central and eastern european countries ceec where security challenges are especially evident and the positions of countries in western europe where they are less acute interact and conflicts in making a common energy security policy as part of the energy union the paper argues that the mainly confederative structure of the eu and diverging national situations make it difficult to unify positions into an effective common energy policy however with the ceec in the eu the eu is also changing and an increased focus on energy security may be accepted extended interconnectedness within and to the ceec appears to be the central issue that would mitigate albeit not solve contemporary security of gas supply problems as it would also bring the internal energy market closer to reality it could in addition help the energy union to become a unifying project merging the interests in the east and the west despite their different security of gas supply concerns with russian gas

from regressive pollution taxes to progressive environmental tax reforms european countries have increased their use of environmental tax instruments by designing new tax bases but many countries face opposition from public opinion for fear of the distributive consequences of these environmental tax reforms this paper sheds light on the distributive consequences of environmental tax policies when households are heterogeneous the objective is to assess whether an environmental tax reform could be pareto improving when the revenue of the pollution tax is recycled by a change in labor tax properties we show that whatever the degree of regressivity of the environmental tax alone it is possible to design a recycling mechanism that renders the tax reform more pareto efficient by simultaneously decreasing the wage tax and increasing its progressivity

factor shares in olg models of growth abstract in standard infinite horizon optimizing models of balanced growth aggregate savings are positively related to private rates of return on investment or for a given technology to the share of accumulated factors of production in aggregate income a relationship of opposite sign may however obtain in overlapping generations olg models where higher rates of return on older agents wealth imply lower disposable income for young laborers with high saving propensity this paper explores such issues in the context of a continuous time olg model deriving simple parametric restrictions conductive to results of either type and discussing how infinite horizon results may carry over to olg settings

between russia as producer and ukraine as a transit country eu dilemma of interdependence and energy security abstract between 2014 and 2015 the eu started a new energy policy in order to address among other issues the problematic character of energy interdependence with russia and thus improve its energy security the aim of this article is to determine how this policy considered interdependence with russia in the light of diversification alternatives energy security is seen through short term and long term dimensions which can be equated to the concepts of vulnerability and sensitivity interdependence as the article shows the alternative of lng is limited by production and consumption patterns in both europe and other world markets it also shows that maintaining interdependence with russia and reducing the role of transit countries such as ukraine would yield benefits both in vulnerability and sensitivity interdependence however while the eu has strongly based its rhetoric on the promise of lng it has ignored alternatives that would maintain interdependence with russia eventually the eu s energy strategy has acknowledged the limitations of lng even though it has not changed its stance towards russia in that respect it seems fair to conclude the eu has not rigorously analysed the transit dimension in its interdependence with russia and the implications for its energy security