The Dynamic Macroeconomic Effects Of Tax Policy In An Overlapping Generations Model

The paper studies the dynamic allocation effects of tax policy in the context of an overlapping generations model of the Blanchard-Yaari type. The model is extended to allow for endogenous labor supply and three tax instruments: a capital income tax, labor income tax, and consumption tax. Analytical expressions and simple diagrams are used to discuss the impact, transition, and long-run effects of tax policy changes. It is shown that a part of the long-run incidence of capital and consumption taxes falls on capital when households’ horizons are finite, whereas labor would fully bear the burden of these taxes in an infinite horizon model.

This book presents a theoretically-based comprehensive analysis of macroeconomic consequences of fiscal policy using a popular economic model: the overlapping generations growth model. A wide range of essential public finance issues is analyzed, including the effects of tax reform on dynamic efficiency, positive and normative effects of public spending, considerations of taxes on fixed assets and monetary holdings, and sustainability of deficits. A unique approach is applied in the study of public finance: one expected to generate substantial interest among current graduate students and active researchers.

Generational policy is a fundamental aspect of a nation's fiscal affairs. The policy involves redistributing resources across generations and allocating to particular generations the burden of paying the government's bills. This chapter of the second edition of The Handbook of Public Economics shows how generational policy works, how it's measured, and how much it matters to virtual as well as real economies. The chapter shows the zero-sum nature of generational policy. It then illustrates generational policy the difference between statutory and true fiscal incidence. It also illuminates the arbitrary nature of fiscal labels as well as their associated fiscal aggregates, including the budget deficit, aggregate tax revenues, and aggregate transfer payments. Finally, it illustrates the various guises of generational policy, including structural tax changes, running budget deficits, altering investment incentives, and expanding pay-as-you-go-financed social security. Once this example has been milked, the chapter shows that its lessons about the arbitrary nature of fiscal labels are general. They apply to any neoclassical model with rational economic agents and rational economic institutions. This demonstration sets the stage for the description, illustration, and critique of generational accounting. The chapter's final sections use a simulation model to illustrate generational policy, consider the theoretical and empirical case for and against Ricardian Equivalence, discuss government risk sharing and risk making, and summarize lessons learned.

Economies are constantly in flux, and economists have long sought reliable means of analyzing their dynamic properties. This book provides a succinct and accessible exposition of modern dynamic (or intertemporal) macroeconomics. The authors use a microeconomics-based general equilibrium framework, specifically the overlapping generations model, which assumes that in every period there are two generations which overlap. This model allows the authors to fully describe economies over time and to employ traditional welfare analysis to judge the effects of various policies. By choosing to keep the mathematical level simple and to use the same modeling framework throughout, the authors are able to address many subtle economic issues. They analyze savings, social security systems, the determination of interest rates and asset prices for different types of assets, Ricardian equivalence, business cycles, chaos theory, investment, growth, and a variety of monetary phenomena. Introduction to Dynamic Macroeconomic Theory will become a classic of economic exposition and a standard teaching and reference tool for intertemporal macroeconomics and the overlapping generations model. The writing is exceptionally clear. Each result is illustrated with analytical derivations, graphically, and by worked out examples. Exercises, which are strategically placed, are an integral part of the book.

This book presents a theoretically based comprehensive analysis of the macroeconomic consequences of fiscal policy using the thorough exploration of a popular economic model: the overlapping generations growth model. Using a reader-friendly approach designed to provide a fresh outlook on theoretical and applied issues in public-sector economies, a wide range of important public finance issues are analyzed, including the effects of tax reform on dynamic efficiency, positive and normative effects of public spending, the impact of taxes on fixed assets and monetary holdings, sustainability of deficits, conflicts between the younger and older generations, and spillover effects of tax reform on the rest of the open-economy world. Analysis of recent developments in the field of public finance is added to this theoretical framework.

This paper presents details of a symposium on forecasting performance I organized under the auspices of the IMF Staff Papers. The assumption that the forecaster's goal is to do as well as possible in predicting the actual outcome is sometimes questionable. ln the context of private sector forecasts, this is because the incentives for forecasters may induce them to herd rather than to reveal their true forecasts. Public sector forecasts may also be distorted, although for different reasons. Forecasts associated with IMF programs, for example, are often the result of negotiations between the IMF staff and the country authorities and are perhaps more accurately viewed as goals, or targets, rather than pure forecasts. The standard theory of time series forecasting involves a variety of components including the choice of an information set, the choice of a cost function, and the evaluation of forecasts in terms of the average costs of the forecast errors. It is generally acknowledged that by including more relevant information in the information set, one should be able to produce better forecasts.

In this collection of 17 articles, top scholars synthesize and analyze scholarship on this widely used tool of policy analysis, setting forth its accomplishments, difficulties, and means of implementation. Though CGE modeling does not play a prominent role in top US graduate schools, it is employed universally in the development of economic policy. This collection is particularly important because it presents a history of modeling applications and examines competing points of view. Presents coherent summaries of CGE theories that inform major model types Covers the construction of CGE databases, model solving, and computer-assisted interpretation of results Shows how CGE modeling has made a contribution to economic policy

This volume deals with all the major topics, summarizes the important approaches, and gives students a coherent angle on all aspects of macroeconomic thought.