Capital accumulation,income distribution and endogenous fertility in an overlapping generations general equilibrium model

A study is conducted in attempts to increase the understanding of the links between macroeconomic effects and causes of population growth in formulating policy. An overlapping generations general equilibrium model is employed aggregating household decisions about fertility, savings, and investment in the human capital of children with the objective of studying intertemporal relationships among population growth, income distribution, inter-generation social mobility, skill composition of the labor force, and household income. As a result of endogenous fertility, the equilibrium path attains steady state from the second generation. Income tax transfer, child taxation, and social security taxation policies are also examined in the paper. A structural explanation is given for the inverse household income-child quantity and negative child quality-quantity relationships seen in developing countries. In a Cobb-Douglas economy, these relationships hold in the short-run, potentially working over the long-run in other economies. Overall, the model shows that group interests may hinder emergence of perfect capital markets with private initiatives. Where developing countries are concerned, these results have strong implications for population policy. A policy mix of building good quality schools, or subsidizing rural education, introducing a formal social security program, and providing high-yield, risk-free investments, banking, and insurance services to the poor is recommended.     

Optimal Stabilization Policy in the Presence of Learning by Doing

This paper analyses the optimal stabilization policy when growth is driven by learning by doing. If benefits of learning by doing are not fully internalized, the optimal policy is to tax labor during expansions and to subsidize it during recessions. The long-term impact of this policy depends critically on initial conditions: If stabilization starts during an expansion, it has a positive effect on long-term production. When stabilization starts during a recession, its long-term effect is negative. The paper makes a methodological contribution in its analytical derivation of the optimal policy along the transition path as well as in the steady state.     

所得税与中国宏观经济波动——基于动态随机一般均衡模型的拓展研究

针对当前中国经济周期波动特征和需求管理导向的宏观调控政策,本文在动态随机一般均衡模型框架中引入征收资本和劳动所得税的政府部门,探讨以税收政策变动为代表的供给管理措施在调节我国宏观经济波动过程中的效果。通过进一步的模型校准以及各宏观经济变量分别对调整资本和劳动所得税的脉冲响应分析发现,当经济面对来自供给的不利冲击导致产出水平有下行风险时,政府降低资本和劳动所得税将激励生产者更多地投入生产要素,从而减税可以有效扩张产出并熨平经济波动。因此,政府应重视供给管理措施在长期性和结构性调控上的优势,使宏观调控能够在优化我国总需求结构、调节社会公平以及转变经济发展方式方面发挥应有的作用。     

Progressive Tax and Inequality in a Unionized Economy*

In this paper, we develop a heterogeneous-agent, endogenous growth model of a unionized economy with distinct progressive tax schedules on labor and capital income. With time preference heterogeneity, the effective labor force, balanced growth, and income inequality are endogenously determined, and these interact with each other. A reduction in the degree of progressive labor tax yields a “double-dividend” in terms of reducing income inequality and boosting economic growth, while capital income progressivity displays the usual growth–inequality trade-off. Particularly, the double-dividend effect becomes more pronounced when unionization is declined or trade unions become more wage-oriented, leading to the so-called “Cheshire cat” phenomenon.     

Education for all. A welfare-improving course for Africa?

In this paper, we argue that the case for universal compulsory education for sub-Saharan Africa might have been overstated. We capture the African situation through a heterogeneous-agent model, in which high costs of education relative to income and the skill premium cause the economy to stagnate in a low steady state with minimal educational attainment. We calibrate the model to available data from the sub-Saharan African countries to study education policies. We find that a tax and in-kind subsidy scheme that effectively redistributes resources from households with lower ability children to those with higher ability children outperforms enrollment-maximizing policies such as the abolition of child labor and compulsory education.     

Macroeconomic policy lessons of labor market frictions

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in over-riding frictions, as well as how it might generate adverse outcomes. A partial-equilibrium, empirically grounded model is used to simulate policy effects.The key results are that policy has effects on the stochastic behavior of key variables - measures that reduce unemployment also reduce its persistence and increase the volatility of vacancies. Hiring subsidies and unemployment benefits have substantial effects on labor market outcomes, while employment subsidies or wage tax reductions are not very effective policy instruments.     

Discreteness and the Welfare Cost of Labor Supply Tax Distortions*

We compare the welfare costs of tax distortions of labor supply in one‐ and two‐member household discrete and continuous choice labor supply (leisure consumption) models calibrated to the same aggregate uncompensated labor supply elasticities. In the discrete models, taxes induce a large response from a subset of the population, whereas the majority of the population exhibits unchanged behavior. In contrast, the majority of the population reacts to tax changes in continuous models. Discrete choice matters as the welfare costs of similar taxes vary significantly when individuals face discrete labor supply choices from when they choose working hours continuously.     

Fiscal policy with direct effects

This paper analyses the effects of fiscal policy in a model where government expenditure and tax changes affect household behaviour directly. This is shown to have implications for both the macroeconomic and welfare effects of changes in government spending.     

The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area

We develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions in the euro area and between the euro area and the world economy. Specifically, we simulate a permanent reduction in labor tax rates in the euro area. The effects on real activity are expansionary in both the short run and long run. Implementing reforms simultaneously across regions would produce extra benefits and make the macroeconomic performance in the euro area more even.     

Dynamic scoring: A back-of-the-envelope guide

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

Macroeconomic equilibrium and welfare under simple monetary and switching fiscal policy rules

Using a standard forward-looking New Keynesian model, this paper investigates rational expectation equilibrium determinacy and macroeconomic performance of simple monetary policy rules under exogenous versus endogenous tax policies when there is tax uncertainty. Under the endogenous tax framework, we found: 1. responding to tax allows monetary policy to have control on the determinacy region, hence higher policy flexibility with respect to the fiscal policy conduct; 2. welfare improvement may come at the expense of cycling. The risk minimizing monetary policy behavior may become problematic since loss function values display huge variations depending on the probabilities given to future tax policy outcomes.     

MONETARY POLICY AND INEQUALITY: HOW DOES ONE AFFECT THE OTHER?

This article studies a labor-supply-side channel affecting the relationship between monetary policy and income inequality. To this end, I build a heterogeneous-agent New Keynesian economy with indivisible labor in which both macro and micro labor supply elasticities are endogenously generated. First, I find that monetary policy shocks have distributional consequences due to a substantial heterogeneity in labor supply elasticity across households. Second, a more equal economy is associated with more effective monetary policy in terms of output. I document supporting empirical evidence for the key mechanism of the model using microlevel data and state-level data in the United States.     

Fiscal policy in a small open economy with cross-border labor mobility

The large and stable inflow of workers’ remittances through formal financial channels to developing countries prompted authorities to harness fiscal resources from this flow. This paper develops a macro-dynamic model of a small open economy with cross-border labor mobility emphasizing fiscal policy. The flow of remittances is the result of a household’s optimizing decision to migrate. We examine the macroeconomic responses to fiscal policies. First, we show that an economy with international migration is more resilient to demand shocks resulting from fiscal contraction. Second, the short-run association between remittances and domestic output depends on the sources of the shocks. Third, our results indicate that the equilibrium impact of a tax on remittances can be expansionary and welfare-improving when an economy is initially close to full employment. The presence of utility-enhancing government expenditure and a potential negative externality from over-allocation of labor abroad (over migration) justify the presence of distortionary taxes.     

Global indeterminacy in an endogenous-growth model with public capital

This paper studies the patterns of growth in an endogenous-growth model where the labor supply is endogenous and sustained growth arises because the services derived from public capital increase the economic productivity. It is assumed that these services are congested by the number of households in the economy but they are not congested by the units of time that each household devotes to work. With this assumption, the dynamic equilibrium exhibits multiple balanced-growth paths, local and global indeterminacy, and limit cycles under some plausible fiscal policies. Our analysis points out that a large lump-sum tax is a necessary condition to obtain this complex equilibrium dynamic behavior.     

Fiscal expansion, monetary policy, interest rate risk premia, and wage reactions

We examine the macroeconomic implications of fiscal policy in a small open economy, with emphasis on the interactions between fiscal, monetary and labour market policies. The paper uses the NBNZ-DEMONZ macroeconometric model. Novel features of the model are that it includes an endogenous interest rate risk premium (IRRP), and forward-looking monetary and fiscal policy reaction functions which capture the essence of New Zealand's Reserve Bank and Fiscal Responsibility Acts. The most important empirical result is that the postulated IRRP, proxying financial market mechanisms, can contribute at least as much as the monetary policy reaction function to maintaining price stability. Also of significance are that an income tax cuts package shows more damped real GDP and underlying inflation paths than does an expenditure increases equivalent; and that the inflationary and real sector impacts of a personal income tax cut package depend heavily on how the cut is `shared' between firms and workers. The nature and interdependence of monetary and fiscal policies and labour market conditions are therefore crucial to the macroeconomic outcomes.     

Optimal fiscal policy in the Uzawa-Lucas model with externalities

Summary. This paper devises a fiscal policy by means of which the first-best optimum equilibrium is attained as a market equilibrium in the Uzawa-Lucas model when average human capital has an external effect on productivity. The optimal policy requires the use of a subsidy to investment in human capital which can be financed by a tax on labor income. Lump-sum taxation is not required to balance the government budget either in the steady state or in the transitional phase. Physical capital income should not be taxed. Alternatively, the optimal growth path can be attained by means of a subsidy to human capital. Received: March 21, 2002; revised version: September 4, 2002 RID="*" ID="*" Financial support from the Spanish Ministry of Science and Technology through PNICDYIT grant SEC2002-03663 is gratefully acknowledged.     

The role of labour demand elasticities in tax incidence analysis with heterogeneous labour

Whether labour bears full burden of household level income and consumption taxes ultimately depends on the degree of substitutability among different types of labour in production. We find more variation in incidence patterns across households with less than perfectly substitutable heterogeneous labour than with perfectly substitutable homogeneous labour in production. This finding is based on results obtained from homogeneous and heterogeneous labour general equilibrium tax models calibrated to decile level income and consumption distribution data of UK households for the year 1994. We use labour supply elasticities implied by the substitution elasticity in households' utility functions and derive labour demand elasticities from the substitution elasticity in the production function. First version received: March 1998/Final version received: April 1999     

PUBLIC FINANCE AND INDIVIDUAL PREFERENCES OVER GLOBALIZATION STRATEGIES

Do preferences toward globalization strategies vary across public‐finance regimes? In this paper, we use data on individual preferences toward immigration and trade policy to examine how pre‐tax and post‐tax cleavages differ across globalization strategies and state fiscal jurisdictions. High exposure to immigrant fiscal pressures reduces support for freer immigration among U.S. natives, especially the more skilled. The magnitude of this post‐tax fiscal cleavage is comparable to the pre‐tax labor‐market effects of skill itself. There is no public‐finance variation in opinion over trade policy, consistent with U.S. trade policy having negligible fiscal‐policy impacts. Public finance thus appears to shape opinions toward globalization strategies.     

The distributional effects of progressive capital taxes

Rising inequality since the 1980s has spurred much research examining the underlying causes and potential policy responses. Among the more controversial, One of the more controversial policy proposals is a progressive capital tax in response to rising top wealth shares around the world proposes a progressive capital tax in response to rising top wealth shares around the world. This paper introduces rank-based econometric methods for dynamic power laws as a tool for estimating the effect of progressive capital taxes on the distribution of wealth under different assumptions about the impact of these taxes on household behavior. In most scenarios, we find that a small tax levied on 1% of households would substantially reshape the US wealth distribution and reduce inequality.     

The Macroeconomic Effects of Taxation in a Federal Europe

The signing of the Maastricht Treaty in 1992 has created a dilemma for fiscal policy at both a theoretical and a policy level. The conflict between the increasingly important stabilising role for fiscal policy post-Maastricht and the pursuit of fiscal harmonisation requires a re-examination of the theoretical framework within which policy discussion should take place. Orthodox tax incidence theory cannot adequately analyse the macroeconomic effects of taxation and the paper proposes an alternative post-Keynesian approach based on the tax and business cycle theories of Kalecki. To illustrate the applicability of a Kaleckian approach to taxation in a Federal system, the paper presents a discussion of the macroeconomic effects of State and local taxation in the US. It is also shown to be necessary to study the structure of State government receipts, the expenditure functions of State governments, the State government budget stance and the nature of intergovernmental relations in order to identify macroeconomic effects.