Balanced-Budget Rules: Welfare Loss and Optimal Policies

Stockman, David R.

doi:10.1006/redy.2000.0122

Cited by 75 publications

(89 citation statements)

References 12 publications

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“…8 The numbers in case four are smaller than in Stockman (2001) who finds larger welfare costs associated with a balanced budget regime. However, he derives his results from an economy with capital and complete markets.…”

Section: The Modelmentioning

confidence: 93%

Myopic governments and welfare-enhancing debt limits

Rieth

2014

Journal of Economic Dynamics and Control

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Section: The Modelmentioning

confidence: 93%

Myopic governments and welfare-enhancing debt limits

Rieth

2014

Journal of Economic Dynamics and Control

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“…Second, our paper also relates to the research on endogenous movements of capital and labor tax rates over the business cycle: see Chari, Christiano, and Kehoe (1994), Stockman (2001), and Klein and Rios-Rull (2003) as well as Feng (2012). These papers emphasize the distinct responses of capital and labor tax rates to exogenous government spending shocks.…”

Section: Related Literaturementioning

confidence: 94%

Public consumption over the business cycle

Bachmann

Bai

2013

Quantitative Economics

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What fraction of the business cycle volatility of government purchases is accounted for as endogenous reactions to overall macroeconomic conditions? We answer this question in the framework of a neoclassical representative household model where the provision of a public consumption good is decided upon endogenously and in a time-consistent fashion. A simple version of such a model with aggregate productivity as the sole driving force fails to match important features of the business cycle dynamics of public consumption, which comes out as not as volatile and persistent as in the data and too synchronized with the cycle. We add implementation lags and implementation costs in the budgeting process to the model, plus taste shocks for public consumption relative to private consumption, and achieve a better fit to the data. All these ingredients are essential to improve the fit. In our baseline specification 50% of the variance of public consumption is driven by aggregate productivity shocks.

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“…For instance, while in a frictionless labour market the labour income tax should optimally not vary much over the business cycle and remain a-cyclical, Arseneau and Chugh (2012) show that under search frictions in the labour market, the optimal labour income tax becomes very volatile and counter-cyclical. Moreover, Stockman (2001) shows that a balanced-budget restriction leads to an increase of the optimal volatility of the labour relative to capital taxes.…”

Section: Introductionmentioning

confidence: 99%

“…Chari et al (1994), Stockman (2001) and Arseneau and Chugh (2012)). This research has acknowledged the importance of market imperfections and of restrictions to the policy menu for optimal taxation.…”

Section: Introductionmentioning

confidence: 99%

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The Optimal Distribution of the Tax Burden Over the Business Cycle

Angelopoulos

Asimakopoulos²,

Malley

2017

Macroecon. Dynam.

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This paper analyses optimal income taxes over the business cycle under a balanced-budget restriction, for low, middle and high income households. A model incorporating capital-skill complementarity in production and di¤erential access to capital and labour markets is developed to capture the cyclical characteristics of the US economy, as well as the empirical observations on wage (skill premium) and wealth inequality. We …nd that the tax rate for high income agents is optimally the least volatile and the tax rate for low income agents the least countercyclical. In contrast, the path of optimal taxes for the middle income group is found to be very volatile and counter-cyclical. We further …nd that the optimal response to output-enhancing capital equipment technology and spending cuts is to increase the progressivity of income taxes. Finally, in response to positive TFP shocks, taxation becomes more progressive after about two years.

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Balanced-Budget Rules: Welfare Loss and Optimal Policies

Cited by 75 publications

References 12 publications

Myopic governments and welfare-enhancing debt limits

Myopic governments and welfare-enhancing debt limits

Public consumption over the business cycle

The Optimal Distribution of the Tax Burden Over the Business Cycle

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