Tax Evasion, Technology Shocks, and the Cyclicality of Government Revenues

This paper analyzes the behavior of the tax revenue to output ratio over the busi- ness cycle. In order to replicate the empirical evidence, we develop a simple model combining the standard Ak growth model with the tax evasion phenomenon. When individuals conceal part of their true income from the tax authority, they face the risk of being audited and hence of paying the corresponding fine. Under the empiri- cally plausible assumptions that the intertemporal elasticity of substitution exhibits a sufficiently small value and that productivity shocks are serially correlated, we show that the elasticity of government revenue with respect to output is larger than one, which agrees with the empirical evidence. This result holds even if the tax system displays flat tax rates. We extend the previous setup to generate larger fiscal deficits when the economy experiences a recession.Tax evasion, Technology shocks, Growth

Tax Rates, Tax Evasion, and Growth in a Multi-period Economy

We extend the basic tax evasion model to a multi-period economy exhibiting sustained growth. When individuals conceal part of their true income from the tax authority, they face the risk of being audited and hence of paying the corresponding fine. Both taxes and fines determine individual saving and the rate of capital accumulation. We show that, if the penalty imposed on tax evaders is proportional to the amount of evaded taxes, then the growth rate is decreasing in the tax rate. However, the relationship between growth and tax rate becomes non-monotonic when the penalty rate is imposed on the amount of evaded income.Tax evasion, Growth

Cost Uncertainty and Taxpayer Compliance

The existence of a private cost borne by audited taxpayers affects the tax enforcement policy. This is so because tax auditors will face now two sources of uncertainty, namely, the typical one associated with taxpayers' income and that associated with the taxpayers' idiosyncratic attitude towards tax compliance. Moreover, the inspection policy can be exposed to some randomness from the taxpayers' viewpoint due to the uncertainty about the audit cost borne by the tax authority. In this paper we provide an unified framework to analyze the effects of all these sources of uncertainty in a model of tax compliance with strategic interaction between auditors and taxpayers. We show that more variance in the distribution of the taxpayers' private cost of evading raises both tax compliance and the ex-ante welfare of taxpayers. The effects of the uncertainty about the audit cost faced by the tax authority are generally ambiguous. We also discuss the implications of our model for the regressive (or progressive) bias of the effective tax system.NULL

Intergenerational mobility : measurement and the role of borrowing constraints and inherited tastes

In this paper, I present some popular measures of mobility in economic outcomes within a family across generations. I also discuss two of the most important factors preventing intergenerational mobility: existence of financially constrained individuals and transmission of tastes from parents to children. Finally, I show how these two factors could give raise to dramatic reversals of fortune affecting successive generations of the same dynasty. I will cast the results of the different models I use in terms of the previous measures of intergenerational mobilit

El premi Nobel d'Economia 1999: Una visió retrospectiva de l'obra de Robert Mundell

El premi Nobel d'Economia de 1999 va estar concedit al professor Robert Mundell per les seves contribucions científiques sobre el paper de les polítiques monetària i fiscal en economies obertes. La seva principal area d'investigació va ser l'anàlisi dels efectes a curt termini de la política d'estabilització sota diferents règims de tipus de canvi. Mundell va demostrar que la política monetària és inefectiva en un règim de tipus de canvi fixos, mentre que la política fiscal és inefectiva sota canvis flexibles del model de Mundell-Fleming). També va desenvolupar un treball pioner sobre l'optimalitat de les àrees amb divisa única. Va assenyalar que la mobilitat del treball és una condició necessària per absorbir els shocks asimètrics que poden patir les diferents regions de l'àrea. Finalment, va demostrar que la inflació més alta induïda per una política monetària expansiva pot comportar un augment en l'acumulació de capital (l'efecte Mundell-Tobin). En aquest artice, també repasso breument la literatura acadèmica inspirada per les idees de Mundell i faig una valoració del seu llegat científic.The Nobel Prize in Economics of 1999 was awarded to Kobert A. Mundell for his scientific contributions on the role of monetary and fiscal policy in open economies. His main area of research was the analysis of the short-run effects of stabilization policy under different exchange rate regimes. Mundell showed that monetary policy is ineffective in a fixed exchange rates regime, while fiscal policy is ineffective under floating exchange rates (the Mundell-Fleming model). He also developed a pioneering work on the optimality of currency areas. He pointed out that labor mobility is necessary to absorb the asymmetric shocks that the different regions of the area could suffer. Finally, he also showed that the higher inflation induced by an expansionary monetary policy might result in increased capital accumulation (the Mundell- Tobin effect). In this article, I also briefly review the academic literature inspired by Mundell's insights and I assess his scientific legacy

The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth

In this paper, we analyze how the introduction of habits and aspirations affects the distribution of wealth when individuals' labor productivity is subject to idiosyncratic shocks and bequests arise from a joy-of-giving motive. In the presence of either bequests or aspirations, labor income shocks are transmitted intergenerationally and this transmission, together with the contemporaneous income shocks, determines the stationary distribution of wealth. We show that the introduction of aspirations increases both the intragenerational variability of wealth and the corresponding degree of intergenerational mobility. The opposite result holds when habits are introduced. Finally, we discuss how aspirations and habits interact with the redistributive features of an unfunded social security system.Aspirations, Habits, Wealth Distribution, Social Security

Can consumption spillovers be a source of equilibrium indeterminacy?

In this paper, we show that consumption externalities are a source of equilibrium indeterminacy in a growth model with endogenous labor supply. In particular, when the marginal rate of substitution between own consumption and the others' consumption is constant along the equilibrium path, the equilibrium does not exhibit indeterminacy. In contrast, when that marginal rate of substitution is not constant, the equilibrium may exhibit indeterminacy even if the elasticity of the labor demand is smaller than the elasticity of the Frisch labor supply.Consumption externalities, equilibrium efficiency, indeterminacy

Sectoral composition and macroeconomic dynamics

We analyze the transitional dynamics of a model with heterogeneous consumption goods. In this model, convergence is driven by two different forces: the typical diminishing returns to capital and the sectoral change inducing the variation in relative prices. We show that this second force affects the growth rate if the two consumption goods are not Edgeworth independent and if these two goods are pro- duced with technologies exhibiting different capital intensities. Because the afore- mentioned dynamic sectoral change arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking differences with the growth model with a single consumption good. We also show that these differences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks between the economy with a unique consumption good and the economy with multiple consumption goods.multi-sector growth models, transitional dynamics, consumption growth.

Estate Taxes, Consumption Externalities, and Altruism

We study how the introduction of consumption externalities affects the efficiency of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of consumption and capital. The optimal tax policy that solves this intertemporal inefficiency consists of a tax on capital income and a pay-as-you-go social security system. The later solves the overaccumulation of capital due to the inoperativeness of the bequest motive and the former solves the inefficient allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal inefficiency that affects the allocation of consumption between the generations living in the same period but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest is also suboptimal. The optimal tax policy in this case consists of an estate tax and a capital income tax. The estate tax corrects the intratemporal inefficiency but generates an intertemporal inefficiency which is corrected by means of an appropriate capital income tax.Consumption externalities, bequests, optimal tax rates