Fiscal policy, growth and income distribution in the UK

Income and income inequality increased substantially in the UK during the industrial revolution. Income inequality was the highest around 1880. This triggered enactments of more egalitarian tax and transfer system, which halved income inequality by the 1960s. Inequality has risen again with fiscal system reforms in the last five decades. By analysing solutions of a dynamic computable general equilibrium (DCGE) model we show how policies could be designed for the optimal equitable paths of UK economy in the 21st century

The pay-as-you-go pension system as fertility insurance and an enforcement device

A PAYGO system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension. In fact, the latter was Bismarck’s historic motive for introducing this system. It is true that the PAYGO system reduces the investment in human capital, but if it is run on a sufficiently small scale, it may nevertheless bring about a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment

Excludable and Non-excludable Public Inputs: Consequences for Economic Growth

Many public goods are characterized by rivalry and/or excludability. This paper introduces both non-excludable and excludable public inputs into a simple endogenous growth model. We derive the equilibrium growth rate and design the optimal tax and user-cost structure. Our results emphasize the role of congestion in determining this optimal financing structure and the consequences this has in turn for the government’s budget. The latter consists of fee and tax revenues that are used to finance the entire public production input and that may or may not suffice to finance the entire public input, depending upon the degree of congestion. 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, although the case of CES technology is also considered.Excludable and Non-excludable Public Goods, Congestion, Growth

The jointly optimal inflation tax, income tax structure, and transfers

The welfare-maximizing income tax structure, rate of money creation, and amounts of intergenerational transfers are jointly determined for given rates of government consumption. When government consumption is zero, it is found for the parameter values examined that the income tax structure is progressive, the rate of money change is negative, and positive transfers are made to the old. As government consumption increases, the tax structure's progressivity declines and turns increasingly regressive, the rate of money change rises, and transfers decrease. It is found that the bulk of the increase in government consumption is optimally financed by a cut in transfers.Expenditures, Public ; Income tax

The Question of Changing the Concept, Paperand Functions of State

This paper onthe questionof the concept, role and functions of State, attempts tocritically analyze recent developments and transformations. Itis assumed that all existing State models to date are in ideological crisis that challenges the concept of State.The problem is that the empirical evidence of the roleand functionsof the State or the State system are different from ast and point of a range of spheres of government, which generate the multiple requirements of the regulatory activity of the State. In the discussion some questions are identified and proposals that may be useful for analyzing the transformation of the State are formulated.Keywords. Concept of State, State functions, role of government.JEL. H70, I18

On the optimal progressivity of the income tax code

This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1:7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible. JEL Klassifikation: E62, H21, H24

Excludable and Non-Excludable Public Inputs: Consequences for Economic Growth

Many public goods are characterized by rivalry and/or excludability. This paper introduces both non-excludable and excludable public inputs into a simple endogenous growth model. We derive the equilibrium growth rate and design the optimal tax and user-cost structure. Our results emphasize the role of congestion in determining this optimal financing structure and the consequences this has in turn for the government’s budget. The latter consists of fee and tax revenues that are used to finance the entire public production input and that may or may not suffice to finance the entire public input, depending upon the degree of congestion. 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, although the case of CES technology is also considered.excludable and non-excludable public goods, congestion, growth

The Quantity and Quality of Teachers: A Dynamic Trade-off

We study the dynamics of the quantity and quality of teachers in the framework of dynamic general equilibrium OLG model. The quantity and quality are jointly set by a government agency wishing to maximize the quality of basic education per student while being bound by teachers’ collective bargaining agreement which equalizes teacher pay. Our model features two stages of education: basic and advanced (college), the latter being required of teachers. The cost of hiring teachers is influenced by the outside opportunities that college educated individuals have in the production sector. We show that this factor strengthens in the process of endogenous growth and moreover that it pushes the optimal trade-off between quantity and quality of teachers in the direction of the former. Namely, the number of teachers hired will grow over time while their relative quality (but not the absolute human capital attainment) will fall. This evolution of human capital accumulation is accompanied by increasing inequality, within the group of college educated workers in particular. Further, we consider the comparative dynamics effect of an exogenous skill biased technological change represented by a positive shock to productivity of the skilled workers, hence to the college premium. We show that this will exacerbate the negative trends in the quality of basic education in relation to GDP growth. Countering this trend would therefore require an increase in the share of GDP spent on basic education, assuming that the institutional setup of the school system remains unchanged.basic and college education, skill premium, student-teacher ratio