Welfare, stabilization, or growth: a comparison of different fiscal objectives

An argument that stabilization produces welfare levels nearly identical to those of welfare maximation, and that both these policies yield large welfare gains and modest growth losses relative to growth maximization policies.Fiscal policy

Growth effects of a flat tax.

A presentation of a quantitative general equilibrium model showing that a revenue-neutral flat tax can permanently boost per capita growth by 0.18 to 0.85 percentage point annually, and that the lower marginal tax rate and the full investment write-off are both important contributors to the increased growth.Flat-rate income tax ; Taxation ; Economic conditions - United States

Optimal fiscal policy, public capital, and the productivity slowdown

A presentation of a quantitative-theoretical model that can account for much of the behavior of the stock of public capital in the U.S. economy over the last 70 years, with an application to examining some possible causes of the slowdown in the growth of U.S. labor productivity.Capital ; Fiscal policy ; Labor productivity

New Keynesian Model Features that Can Reproduce Lead, Lag and Persistence Patterns

This paper uses a new method for describing dynamic comovement and persistence in economic time series which builds on the contemporaneous forecast error method developed in den Haan (2000). This data description method is then used to address issues in New Keynesian model performance in two ways. First, well known data patterns, such as output and inflation leads and lags and inflation persistence, are decomposed into forecast horizon components to give a more complete description of the data patterns. These results show that the well known lead and lag patterns between output and inflation arise mostly in the medium term forecasts horizons. Second, the data summary method is used to investigate a rich New Keynesian model with many modeling features to see which of these features can reproduce lead, lag and persistence patterns seen in the data. Many studies have suggested that a backward looking component in the Phillips curve is needed to match the data, but our simulations show this is not necessary. We show that a simple general equilibrium model with persistent IS curve shocks and persistent supply shocks can reproduce the lead, lag and persistence patterns seen in the data.output and inflation comovement, inflation persistence, forecast errors

Employment comovements at the sectoral level over the business cycle

This paper extends the technique suggested by den Haan (2000) to investigate contemporaneous as well as lead and lag correlations among economic data for a range of forecast horizons. The technique provides a richer picture of the economic dynamics generating the data and allows one to investigate which variables lead or lag others and whether the lead or lag pattern is short term or long term in nature. The technique is applied to monthly sectoral level employment data for the U.S. and shows that among the ten industrial sectors followed by the U.S. Bureau of Labor Statistics, six tend to lead the other four. These six have high correlations indicating that the structural shocks generating the data movements are mostly in common. Among the four lagging industries, some lag by longer intervals than others and some have low correlations with the leading industries indicating that these industries are partially influenced by structural shocks beyond those generating the six leading industries.sectoral employment comovement, leading and lagging sectors, forecast errors, business cycles

Tax reform and public-sector expenditures

This paper evaluates the efficiency implications of various fundamental tax reforms in an infinite-horizon endogenous growth model with public-sector investment in human capital. A fully optimal reform requires the government to adjust its expenditures on education, training, or R&D, to take into account the tax incentives that are put in place to encourage private investment in these areas. So-called "revenue neutral" reforms (which address tax incentives but not public expenditures) can thus bring about a suboptimal mix of public and private investment in human capital. In quantitative simulation, we find that the appropriate size of government can be quite important for efficiency and that reforms which ignore this idea by maintaining public expenditures at pre-reform levels can miss out on a large portion of the available welfare gains from moving to a consumption-based tax system.Human capital ; Income tax ; Tax reform ; Fiscal policy

Optimal fiscal policy in a multisector model with minimum expenditure requirements

This paper investigates optimal fiscal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint and requirements that some minimum amount of spending be undertaken in each sector. It is shown that optimal policy does not equally spend in each sector but instead results in one of the minimum expenditure constraints binding.multisector model, Ramsey planner, minimum expenditure constraint

Employment comovements at the sectoral level over the business cycle

This paper implements the technique suggested by Den Haan (J Monet Econ 46:3–30, 2000) to investigate contemporaneous as well as lead and lag correlations among economic data for a range of forecast horizons. The lead/lag approach provides a richer picture of the economic dynamics generating the data and allows one to investigate which variables lead or lag others, and whether the lead or lag pattern is short term or long term in nature. This technique is applied to monthly sectoral level employment data for the USA and shows that among the ten industrial sectors followed by the US Bureau of Labor Statistics, six tend to lead the other four. These six have high correlations indicating that the structural shocks generating the data movements are mostly in common. Among the four lagging industries, some lag by longer intervals than others and some have low correlations with the leading industries. These low correlations may indicate that these industries are partially influenced by structural shocks beyond those generating the six leading industries, but they also may indicate that lagging sectors feature a different transmission mechanism of shocks

Small-scale New Keynesian model features that can reproduce lead, lag and persistence patterns

This paper uses a new method for describing dynamic comovement and persistence in economic time series which builds on the contemporaneous forecast error method developed in den Haan [den Haan, W. J. 2000. “The Comovement between Output and Prices.” Journal of Monetary Economics 46: 3–30]. This data description method is then used to address issues in New Keynesian model performance in two ways. First, well known data patterns, such as output and inflation leads and lags and inflation persistence, are decomposed into forecast horizon components to give a more complete description of the data patterns. These results show that the well-known lead and lag patterns between output and inflation arise mostly in the medium-term forecasts horizons. Second, the data summary method is used to investigate a small-scale New Keynesian model with some important modeling features to see which of these features can reproduce lead, lag and persistence patterns seen in the data. We show that a general equilibrium model with habit formation, persistent IS curve shocks and persistent supply shocks can reproduce the lead, lag and persistence patterns seen in the data

Do US Government Tax Revenues and Expenditures Respond to Debt Levels and Economic Conditions Asymmetrically over the Business Cycle?

This paper empirically investigates whether there are asymmetries in the responses of US government tax revenue and expenditure to debt levels and economic conditions over the business cycle. State of the art regime switching regression models, including Threshold Regression and Markov Switching, are investigated. Both sides of the government budget show asymmetries, but the asymmetries for tax revenue show greater statistical significance. The results show that both tax revenue and expenditure respond to high debt levels, with the asymmetry in this response showing that fiscal authorities take weaker action in response to debt during poor economic times. In addition, the asymmetric response to economic conditions for both sides of the budget shows that stronger countercyclical policy is taken during poor economic times