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- Creator:
- Aiyagari, S. Rao.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 424
- Keyword:
- Tax policy, Tax rates, Tax, Taxation, Taxes , Deficit, Federal government, and Budget management
- Subject:
- H62 - National budget, deficit, and debt - Deficit ; Surplus and H21 - Taxation, subsidies and revenue - Efficiency ; Optimal taxation
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- Creator:
- Braun, R. Anton.
- Series:
- Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
- Number:
- 506
- Abstract:
- This paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates. It finds that systematically including tax variables in a standard real business cycle model substantially improves the model's ability to reproduce basic facts about postwar U.S. business cycle fluctuations. In particular, modeling fluctuations in personal and corporate income tax rates increases the model's predicted relative variability of hours and decreases its predicted correlation between hours and average productivity. Fluctuations in tax rates produce large substitution effects that alter the leisure/labor supply decision.
- Keyword:
- Tax rates, Real business cycle model, Corporate tax , Tax, Productivity, Taxation, Taxes, Business cycle, and Income tax
- Subject:
- E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, H24 - Taxation, subsidies and revenue - Personal income and other nonbusiness taxes and subsidies, and H25 - Taxation, subsidies and revenue - Business taxes and subsidies
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- Creator:
- Krusell, Per., Quadrini, Vincenzo., and Ríos-Rull, José-Víctor.
- Series:
- Lucas expectations anniversary conference
- Abstract:
- We use political-equilibrium theory and the neoclassical growth model to compare the quantitative properties of different tax systems. We first explore whether societies which can only use consumption taxes fare better than societies which can only use income taxes. We find that if government outlays are used mainly for redistribution through transfers, then the answer is no, contradicting conventional wisdom in public finance. The reason for this is that when taxes are endogenous, and voted on by a selfish constituency, the distortionary effects of taxation are taken into account in choosing the level of taxation. Hence, political equilibria have the property that taxes which are relatively distortionary will be relatively low. These results are overturned if the government outlays are used only for the providing of public goods, implying that less distortionary taxes give better outcomes. We also investigate the properties of a tax systems in which both consumption and income taxes are used and voted on simultaneously. Since the ability to use more tax instruments allows redistribution with less distortions, the total amount of transfers tends to be higher here than in one-tax systems. Typically, tax systems tend to be self-perpetuating in the sense that changes of the tax system result in a reduction in the welfare of the median voter.
- Keyword:
- Tax, Consumption tax, Tax system, Income tax, and Taxes
- Subject:
- H25 - Taxation, subsidies and revenue - Business taxes and subsidies, E62 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - Fiscal policy, and H24 - Taxation, subsidies and revenue - Personal income and other nonbusiness taxes and subsidies
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- Creator:
- Edge, Rochelle Mary, 1971- and Rudd, Jeremy Bay, 1970-
- Series:
- Joint commitee on business and financial analysis
- Abstract:
- We add a nominal tax system to a sticky-price monetary business cycle model. When nominal interest income is taxed, the coefficient on inflation in a Taylor-type monetary policy rule must be significantly larger than one in order for the model economy to have a determinate rational expectations equilibrium. When depreciation is treated as a charge against taxable income, an even larger weight on inflation is required in the Taylor rule in order to obtain a determinate and stable equilibrium. These results have obvious implications for assessing the historical conduct of monetary policy.
- Keyword:
- Monetary policy, Business cycle, Cycle, Interest, Inflation, Policy, Prices, Monetary, Rational expectation, and Tax
- Subject:
- E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E12 - General aggregative models - Keynes ; Keynesian ; Post-Keynesian, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles