No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Liquidity Constraints, Fiscal Policy, and Consumption
... Our focus on household illiquidity is based on a large literature in finance that studies how liquidity (or lack of it) affect household decisions (e.g., Hall and Mishkin, 1982;Hubbard et al., 1986;Zeldes, 1989;Deaton, 1991). To the best of our knowledge, our paper is the first to examine strategic implications for retailers of offering BNPL. ...
... The second dimension, the ability to pay, is meant to capture the fact that some consumers in a market may not have the liquidity to make a purchase that they would otherwise make. A large literature in finance (for example, Hall and Mishkin, 1982;Hubbard et al., 1986;Zeldes, 1989;Deaton, 1991) discusses how liquidity constraints affect household choices. In the context of our model, liquidity constraints, which are determined by available cash, savings, and traditional form of credit such as credit cards, determine whether or not a consumer can purchase the product. ...
In this paper, we study the incentives of vertically differentiated firms to offer Buy Now, Pay Later (BNPL) in a competitive market. BNPL is a relatively new payment mechanism which, at the point of sale, allows consumers to pay for a product in interest-free installments spread out over a few weeks/months. For a monopolist, offering BNPL is essentially about expanding the market by offering financing to the consumers who cannot afford its product. Therefore, a monopolist is always better-off providing BNPL to its consumers. However, in a competitive environment, offering BNPL is a more complex strategic decision because retailers also need to consider strategic reactions from their competitors. We find that in a competitive situation either of the two retailers might refrain from offering BNPL. This is because when one retailer offers BNPL, the other firm not offering BNPL also benefits from competitive spillovers. Although a monopolist’s benefits from offering BNPL increases in its product quality, in a competitive environment, holding all else constant, a low-quality firm might have more to gain from offering BNPL. In addition to asymmetric equilibria, we also find that there is a symmetric equilibrium in which both retailers offer BNPL. In view of public concerns about possible negative impact of BNPL on consumers, we also study how BNPL consumers’ ignoring the cost of using BNPL can adversely affect them. We find that underestimation of these costs lowers consumers’ welfare, and this reduction in welfare stems from three different sources - (i) higher product prices, (ii) excessive purchase, and (ii) excessive upgrades to the higher quality product.
... To advance the course of Neoclassical model of budget deficit, Auerbach and Koflikoff (1986) conducted policy simulations and their analysis emphasizes that the immediate impact of a temporary budget deficit may be small and potentially perverse, such that temporary deficit might stimulate saving in the short-run. They stress the importance of wealth effects which cumulate over time, so that temporary deficits eventually crowd out private investment (Hubbard andJudd, 1986, Johnson, Koflikoff andSamuelson, 1987). ...
Against the background of active fiscal policy, resulting in significant rise in budget deficit and public debts, this study examines the effect of fiscal deficits on economic growth in Nigeria. Using Nigeria data spanning the period 1990 to 2019, obtained from Central bank of Nigeria (CBN) statistical bulletin, 2020 and employing the Generalized Method of Moments (GMM) in a two-stage least squares estimation model, the study finds that persistent fiscal deficits and high interest rates constrain economic growth in Nigeria. Also brought to the fore is that external debts and inflation rates have no significant consequences on economic growth. The study revealed further that money supply exerts positive effect on economic growth. The study, therefore, stresses the need for improved standard of fiscal policy and monetary policy, and to engage the public financial management system in the spending and management of government debts to influence resource allocation and income distribution in order to reap the benefit of fiscal deficits. Reduction in fiscal deficits and lowering interest rates are important policy options to engender economic growth in Nigeria. JEL classification: O11, O23, O47, O55
... Similarly, in incomplete market models with endogenous labor, borrowing constraints, and idiosyncratic earnings risk, if labor taxes are restricted to be proportional and cannot be progressive, relying on labor income taxes alone translates directly into low consumption for poor households at the constraint. Such labor taxes may not be optimal, and require instead a redistributive positive capital tax forever if progressive labor taxes are ruled out (see Hubbard and Judd (1987)). Comprehensive theoretical and quantitative analyses of such cases are studied and illustrated in detail by Conesa, Kitao, and Krueger (2009). ...
We generalize recent results of Bassetto and Benhabib (2006) and Straub and Werning (2019) in a neoclassical model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. We provide a sufficient condition under which optimal redistributive capital taxes remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We then provide an interpretation of our sufficient condition. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible. (JEL D31, E21, H21, H23, H25, J22)
... According to Modigliani's life cycle theory and Friedman's permanent income hypothesis, households can smooth consumption expenditure through intertemporal resource allocation [48,49]. Due to income instability, the lack of credit guarantee, information asymmetry, and an imperfect credit system, rural household credit constraints in developing countries are more severe than in the developed countries [22,30,36,[50][51][52][53]. Lack of sufficient food causes stunting, wasting, malnutrition, and diseases, and a household's inability to borrow to smooth out consumption restriction will perpetuate these effects. ...
This is the first study in China that looks at the impact of credit constraints from formal financial institutions on Chinese rural residents’ health. We use the Chinese Household Income Project (CHIP) data collected by the Annual Household Survey Office of Integration of Urban and Rural in the National Bureau of Statistics in 2014. We measure rural residents’ health status with self-rated health assessment and the number of sick days in 2013. The results obtained from using the ordered probit model show that, in general, credit constraints from formal financial institutions significantly and negatively affect the self-rated health of Chinese rural residents. When an endogeneity issue is addressed using the instrumental variable (IV) approach, this paper’s results are still robust. The results also show that the impact of credit constraints from formal financial institutions on rural residents’ self-rated health is significant in male, female, married, and unmarried sub-groups. Further, we find that credit constraints from formal financial institutions impact rural residents’ health through income and economic vulnerability. The findings have implications for preventing rural residents from falling into a health trap due to credit constraints from formal financial institutions.
... Our paper is connected to the literature analyzing the dynamic eects of corporate taxes on investment and macroeconomic aggregates using a dynamic general equilibrium 4 Hubbard and Judd (1986), Aiyagari (1995) and Imrohoroglu (1998) also demonstrate that a positive capital income tax is part of the optimal tax system in a model where households subject to uninsurable idiosyncratic income risk while facing face borrowing constraints. framework. ...
We study the incidence of capital income taxation in a lifecycle model with heterogeneous firms and financing constraints, using a marginal excess burden (MEB) analysis. We find that the welfare costs of corporate income, dividend and capital gains tax increases are vastly different. More importantly, such tax burdens are allocated unevenly to households and generations due to changes in individual behaviour and price adjustments in general equilibrium. At aggregate level, taxing capital income at the rm level through a corporate income tax results in higher tax burden than taxing capital income at the household level through dividend and capital gains taxes. Corporate tax reforms that shift the burden of capital income taxation from the rm to household side potentially result aggregate efficiency gains and overall welfare improving. However, welfare outcomes are quite different across households, depending on income type, age-cohort and budget balancing tax instruments. Interestingly, majority of currently alive households, especially retirees, experience welfare gains under moderate reforms, but suffer from welfare losses under more radical reforms that replace a tax on corporate income with a tax on personal capital income.
... should not be strained to present a balanced budget every financial year since this would weaken the role of taxation and transfers as stabilisers. However, with the commencement of the neoclassical theory, Diamond (1965) and Hubbard & Judd (1986) dismissed the works of Keynes predominantly due to the fact that it supported budget deficits. The above-mentioned neoclassical theorists pointed out with great emphasis that continual government deficits results in crowding out of private capital accumulation. ...
The primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.
... Quantitative analysis and calibration The SIM model has become a workhorse of quantitative macroeconomics. Because it combines an explicit micro model of heterogeneous households' behavior with a full-blown equilibrium macro model, both micro data on individual allocations (e.g., earnings, wealth, consumption, and hours worked) and aggregate data from 10 These life-cycle versions of the SIM model owe an intellectual debt to Auerbach and Kotlikoff (1987) who developed a detailed overlapping generations model of the US economy and used it for quantitative analysis (see also Hubbard and Judd, 1986, for an early contribution). These early models, however, did not incorporate uninsurable risk. ...
... The broader literature on capital taxation is vast, and we will not attempt to review it here (but see Chari and Kehoe (1999) and Golosov, Tsyvinski and Werning (2006) for surveys). Our paper is more closely related to the quantitative public finance literature that allows for incomplete markets, plausibly restricted tax instruments, and finitely lived individuals (Hubbard, Judd, Hall and Summers, 1986;Aiyagari, 1995;Imrohoroglu, 1998;Erosa and Gervais, 2002;Garriga, 2003;Conesa, Kitao and Krueger, 2009;Kitao, 2010). Some of these studies found that the optimal capital tax rate may be positive and large. ...
... Atkeson et al. (1999) show that the optimal tax on capital is still zero in a two-period overlapping generations model when the government is allowed to condition the labor income tax on age. Other works, such as Aiyagari (1995), Hubbard and Judd (1986),İmrohoroǧlu (1998), Erosa and Gervais (2002), Conesa et al. (2009), Garriga (2001), Jones et al. (1997) and Correia (1996), identify theoretical conditions under which it is optimal to tax capital. ...
Previous literature demonstrates that in a computational life cycle model the optimal tax on capital is positive and large. Given the computational complexities of these overlapping generations models it is helpful to determine the relative importance of the economic factors driving this result. I highlight the impact of changing two common assumptions in a benchmark model that generates a large optimal tax on capital similar to the model in Conesa et al. (2009). First, the utility function is altered such that it implies an agent's Frisch labor supply elasticity is constant, as opposed to increasing, over his lifetime. Second, the government is allowed to tax accidental bequests at a separate rate from ordinary capital income. The main finding of this paper is that these two changes cause the optimal tax on capital to drop by almost half. Furthermore, I find that the welfare costs of adopting the high optimal tax on capital from the benchmark model in the model with the altered assumptions, which calls for a lower tax on capital, are equivalent to 0.35 percent of total lifetime consumption. Quantifying the impact of these assumptions in the benchmark model is important because the first has limited empirical evidence and the second, although included for tractability, confounds a motive for taxing capital with a motive for taxing accidental bequests.
... When households or firms face liquidity constraints, shifting tax liability to periods when such constraints are relaxed may improve market outcomes. As emphasized by Hubbard and Judd (1986), this could change one's conclusions about tax policies that shift the timing of tax payments. From the perspective of equivalent taxes, it could introduce a difference between two systems that vary only with respect to timing. ...
In economic analyses of the effects of tax policies, one commonly encounters discussions of the equivalence of apparently different policies, where “equivalence” is defined as the policies having the same impact on fundamental economic outcomes. These related tax policies may differ in many respects, including (1) the side of a market on which they are applied, (2) the form in which they are imposed (e.g., as a unit or ad valorem tax, on a tax-inclusive or tax-exclusive basis, etc.), (3) whether they are imposed on households or firms, (4) the market in which they are directly imposed, (5) their timing, and (6) whether behavioral adjustments are involved in the equivalence. These differences give rise to conditions under which the equivalences may break down, because of several factors, including (1) differences in salience; (2) market imperfections, such as liquidity constraints, price rigidity or imperfect competition; (3) differences in information requirements and the costs of tax administration and enforcement; and (4) government accounting rules. This paper draws out the key issues that relate to tax equivalences, using several illustrations from important instances of such equivalences that span different areas of taxation, with many of these illustrations relating to the taxation of capital income. Recognition of equivalences and the ways in which they may fail to hold is important both for positive analysis (e.g., the political reasons for choosing one approach over another) and for normative analysis (to determine which approach may be a more effective way of implementing a policy).
... Tobin (1980) and Hubbard and Judd (1986) have argued that liquidity constraints are possible drivers of increased current household consumption in response to government"s choice of debt financing, since the interest rate the government faces is often lower than the ones individuals would face if borrowing themselves. Hence, their net wealth increases, and the need for savings decreases. ...
Using an overlapping generations model, we argue that a decline in the savings rate, such as the one that has been observed in Portugal over the past 30 years, may be motivated by an increase in the discount factor. This is a standard result for macroeconomic models with agents that live for two periods. However, we innovate in proxying empirically the discount factor by a number of items, such as the fertility rate and the marriage rate. A decline in these suggests that people value the present over the future. As such the discount factor increases. As it turns out, both variables are empirically significant in our econometric analysis and have the correct sign. Furthermore, Ricardian Equivalence effects seem to be absent from the savings behavior of Portuguese households, as increases in public debt are met with decreases in savings by households. Government expenditure is not being perceived as levying higher taxes in the future. Finally, we also show that precautionary saving motivated by the increase in the unemployment rate is only relevant for rates below 6,5%. Above this threshold, the decline in savings due to the decline in income is estimated to be the dominant effect, which becomes dramatic when we consider the current rate of nearly 16%. Portuguese households are simply unable to save currently. The empirical implications of our analysis are staggering, as they question the effectiveness of any austerity program that does rely on higher taxes: these are a tantamount to lower savings rate, which in turn increase country default probabilities, as measured in CDS and bond markets.
... The optimal ratio between these two forms of taxes can be evaluated with respect to the liquidity constraints of the economy. Hubbard et al. (1986) analyze the impact of fiscal policy under liquidity constraints. When consumers face liquidity constraints due to imperfect financial markets, they prefer to pay tax in later periods rather than in earlier ones. ...
In a standard multi-period model, consumption tax and wage tax are equivalent. I show that when a capital market is incomplete-in the sense that the rates of return from risky investments are idiosyncratic and there is no insurance for such idiosyncratic risk-the introduction of consumption tax in the presence of wage tax improves welfare. This holds true even in the presence of optimal or non-optimal capital income taxes. In the general equilibrium model, the optimal level of consumption tax is determined to balance the benefits of the risk-sharing effect and asset accumulation effect and the costs of postponing government revenue to later periods.
... Although consumers face different income levels over time, it is possible for them to maximise lifetime utility by smoothing their consumption if the assumption of no borrowing constraints is imposed (Hall 1978). On the other hand, Dolde (1978) and Hubbard and Judd (1986) set the default risk as an exogenous variable and introduced borrowing constraints in their model. Lawrance (1995) included consumer default probability in the model as an exogenous variable instead of using credit constraints, whereas Rinaldi and Sanchis-Arellano (2006) and Sanchis-Arellano (2006) argued that, in the short run, the role of financial and housing assets tends to support the idea that assets are used as a buffer against unexpected shocks. ...
The paper examines whether banking regulations and monetary policy contributed to controlling the fragility of household debt in Korea. The results show that housing loan regulations such as debt to income regulation contributed to a lower household debt delinquency ratio. Lowering the target interest rate provided additional stabilisation of the delinquency ratio. It is recommended that the government adopt an appropriate mix of regulation and monetary policy to control household financial fragility. The financial supervisory services need to be involved in managing debt to income regulation and minimising financial instability and financial market distortions. Further, the monetary authority has to adopt a more effective position in controlling the real lending interest rate and the delinquency ratio of household loans. Such a policy mix will improve effectiveness in controlling financial fragility, especially at a time of financial crisis. © 2017 Crawford School of Public Policy,The Australian National University and John Wiley & Sons Australia, Ltd
... should not be strained to present a balanced budget every financial year since this would weaken the role of taxation and transfers as stabilisers. However, with the commencement of the neoclassical theory, Diamond (1965) and Hubbard & Judd (1986) dismissed the works of Keynes predominantly due to the fact that it supported budget deficits. The above-mentioned neoclassical theorists pointed out with great emphasis that continual government deficits results in crowding out of private capital accumulation. ...
The primary motivation behind this study was to explore the consequential effects of budget deficit on SouthAfricàs economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.
... Modigliani's theory emerged at Midcentury, and neoclassical economists have been aware of some of its shortcomings since at least the nineteen-eighties. From research by Hall (1978), Flavin (1985), Hubbard and Judd (1986), Mariger (1987), and the Nobel-honored work of Angus Deaton (1991) it has been known that the Modigliani theory fails to some extent because it does not allow for saving decisions of those who are "liquidity constrained," and because a substantial part of the population are "liquidity constrained." To be "liquidity constrained" is to be unable to borrow at a market rate of interest because one has insufficient collateral to guarantee the loan. ...
Wealth Inequality (Elgar, 2017). Certainly Piketty's work has given us new reason to revisit the old question of the future of capitalism, and new tools and evidence with which to do it. Nevertheless, despite the title of Piketty's book, which acknowledges that he is following a path broken by Marx, this essay will argue that Piketty's discussion is limited by his failure to adopt a more Marxist perspective. i. Waddaya mean, Capitalism? In 1928, Schumpeter wrote " Capitalism … will be changed … into an order of things which it will be merely a matter of taste and terminology to call Socialism or not. " Today, almost 90 years later, few would suggest that the systems in the United States and most of Europe are socialist, but are they capitalist? We might modify Schumpeter's formulary and ask whether capitalism might transform itself into a system such that it is " merely a matter of taste and terminology to call capitalism or not. " Schumpeter's understanding that capitalism is a self-transforming system is a useful starting point, and it alerts us that we cannot avoid entering into this " matter of taste and terminology, " by choosing a clear definition of capitalism. There are at least three ways that we might choose a definition: precedence, usefulness, or common usage. Piketty relies on common usage. If we instead rely on precedence, Marx' definition would be used, since he after all coined the word " capitalism. " We will see that this is also the more useful definition. A definition is useful to the extent that it illuminates the question at hand. As Marx was raising the same question as we are, it should not be surprising that his definition is also more useful. Nevertheless, it is only a beginning point.
In a federal system like India, the states’ fiscal performance shapes their growth trajectories. However, the empirical studies on the relationship between the composition of fiscal deficit and economic growth in India are limited. This study attempts to fill the gap by bifurcating the gross fiscal deficit into revenue deficit (RD) and effective fiscal deficit (EFD) for 14 major Indian states from 1980-81 to 2019-20. The findings reveal that RD, EFD, tax revenues, non-tax revenues, and inflation rates negatively impact the state's economic growth. Nevertheless, the effect of RD is relatively stronger than EFD. Additionally, private investment and Fiscal Responsibility Legislation (FRLs) have positive impacts. The interaction between the FRL dummy and EFD significantly impacts growth, but economic policy reform (EPR) does not affect growth. Further, the panel threshold fixed-effect model confirms the existence of a threshold effect of both RD and EFD, which implies that not all deficits have detrimental effects on growth. When deficit is constrained within the specific limits, it stimulates economic growth. However, surpassing the critical limits have an adverse impact on growth. These findings highlight the importance of prudent fiscal management and effective policy implementation for the economy's sustainable and inclusive economic development.
I quantitatively characterize optimal consumption and labor income taxes in a structural life-cycle model of household consumption, saving, and employment choices that allows for irreversibility of durable goods and preference heterogeneity. I find that durables should be subsidized and nondurables should be taxed at a uniform rate. The durable subsidy is driven by the life-cycle features of the model together with durables’ irreversibility and borrowing constraints. Uniform taxation on nondurables holds under exogenous and endogenous—fully or weakly separable—labor supply and it relies on homogeneity of intertemporal preferences. Allowing for government’s equity concerns, I show that the model rationalizes the tax practice. (JEL D15, G51, H21, H23, H24, H31, J22)
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent return heterogeneity, we revisit this question. With heterogeneity, the two tax systems typically have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare. Turning to optimal taxation, the optimal wealth tax (OWT) is positive and yields large welfare gains by raising efficiency and lowering inequality. In contrast, the optimal capital income tax (OKIT) is negative– a subsidy– and delivers lower welfare gains than OWT, owing to the welfare losses from higher inequality. Furthermore, when the transition path is considered, the gains from OKIT turn into significant welfare losses for existing cohorts, whereas OWT continues to deliver robust welfare gains. These results suggest that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.
The doctrine of functional finance seeks to get around the argument that government deficit spending crowds out other forms of spending and has no positive economic benefit. Instead it holds that if people are willing to lend money to the government there should be no crowding out, a view that inspired modern monetary theory. This paper argues against these views and makes a case for cyclically balanced government budgets. Following Keynes, governments should run surpluses in good economic times and roughly equivalent deficits to stimulate the economy during recessions. Following Piketty, the paper opposes government budget deficits because of their distributional consequences. Taxing the rich is better than borrowing from them, except during times of recession.
Using a rich set of microdata from a credit union in Colombia, we estimate the factors behind the consumer credit demand and provide evidence of credit constraints from different perspectives including the lack of response of low-income customers to the interest rate. We also show the different ways in which the credit union implements additional rationing such as denying and trimming down the credit requests. For this, the credit union uses the scores and indebtedness of individuals. Finally, we estimate the supply of consumer credit where the interest rate, income, scores, and indebtedness are fundamental.
Governments attempt to provide the energy sector with incentives to replace old technologies with new ones based on renewable energy as the most effective way to combat climate change. Yet in the energy sector prevail fossil fuel incumbents that might inhibit renewable energy entrants. Our paper provides a game-theoretic stylization of competition between those two types of firms. Incumbents set prices and entrants respond with quantity adjustments. In the context of a dynamic limit pricing model, we study the entry dynamics in a market in which the dominant firms (fossil fuel energy suppliers) face the entry of a group of competitive fringe firms (renewable energy suppliers) when the dominant firms have easier access to financial markets, but the fringe firms finance their expansion with internal finance. We also investigate the effect of the public support of renewable energy firms through subsidies. Our model is built on Judd and Peterson (1986, JET), but our solutions are obtained through a non-linear model predictive control algorithm. By this technique, we can predict the outcome of the competition between incumbents and entrants and the impact of financial and fiscal policies considering moving-horizon strategies.
This paper shows the importance of the age path (life‐cycle timing) of any tax for the accumulation of capital in the economy. Income, consumption, and wage taxes differ in their age paths as well as their incentive effects. This paper studies how the differing age path of each tax affects the capital accumulation of the economy in an empirically calibrated life‐cycle model. We investigate lump‐sum “age” taxes and find in every case that the later the person pays tax, the higher the k of the economy. To analyze the life‐cycle timing effect of conventional transactions‐based taxes (income, consumption, and wage), we replace each tax with a lump‐sum age tax that has the identical age path of tax payments over the life cycle. We find that the timing effect is quantitatively important and often causes the impact of a tax on capital accumulation to be very different from what would be predicted from the incentive effect.
This paper empirically analyzes the effects of tax shocks on private consumption expenditures in Turkey. For this purpose, private consumption expenditures are firstly decomposed into four major categories and then to which structural VAR (SVAR) model is employed using a data set for the period 2003:Q1-2013:Q3. The empirical findings of the paper show that both in the short and long run, private consumption expenditures are affected by value-added tax (VAT) and personal income tax. However, it is important to highlight that VAT plays a more important role in influencing private consumption expenditures than the other taxes under consideration. Overall, the findings reveal that the effects of tax shocks on private consumption expenditures vary depending on the types of taxes, components of the private expenditures, and length of the period.
This paper empirically analyzes the effects of tax shocks on private consumption expenditures in Turkey. For this purpose, private consumption expenditures are firstly decomposed into four major categories and then to which structural VAR (SVAR) model is employed using a data set for the period 2003:Q1-2013:Q3. The empirical findings of the paper show that both in the short and long run, private consumption expenditures are affected by value-added tax (VAT) and personal income tax. However, it is important to highlight that VAT plays a more important role in influencing private consumption expenditures than the other taxes under consideration. Overall, the findings reveal that the effects of tax shocks on private consumption expenditures vary depending on the types of taxes, components of the private expenditures, and length of the period.
This paper examines optimal policy in a macroeconomic model with collateral constraints. Binding collateral constraints yield inefficient competitive equilibrium allocations because they distort the optimal utilization of real resources. I identify the set of policy instruments that can be used by a Ramsey planner to achieve the first-best and the second-best (i.e., constrained planner's) allocations. A system of distortionary taxes on capital and labor income, along with direct lump-sum transfers among borrowers and lenders replicates the first-best outcome. The tax rates correct for the marginal distortions, whereas the direct lump-sum transfers perform income redistributions among the agents. In absence of direct lump-sum transfers, the distortionary taxes have an additional role, i.e., to perform implicit income transfers, and only second-best outcomes are attainable. I also derive the optimal policy in response to real and financial shocks, and show how the policy recommendations differ depending on the set of policy instruments available.
Since the emergence of the financial crisis, most of the EU countries have promoted impressive public interventions to support financial institutions, contributing to a significant rise in general government gross debt-to-GDP ratios. As such, the issue of how to best pursue a fiscal consolidation will become crucial regarding the fiscal policy stance. This paper aims at characterizing four different stylized debt consolidation strategies extensively identified in the literature (one pure revenue-based and three expenditure-based) in order to assess welfare affects and, in particular, the inequality effects involved. For this purpose, we built a general equilibrium heterogeneous-agent model capable of exploring the relationship between fiscal policy and the endogenous cross-section distribution of income and wealth. Moreover, we decompose the impacts on welfare criteria in order to distinguish pure efficiency effects from insurance and inequality effects. According to our simulations, the adjustment based on the reduction of unproductive expenditures came out to be the most welfare-enhancing compared to those based on tax increases or on social transfer reductions.
La relation fiscalité/épargne des ménages est, à l›orée de la décennie 90, en France comme dans les grands pays industrialisés, d›importance et d›actualité certaines. D›importance tout d›abord, dans la mesure où la fiscalité étant une composante du rendement net de l›épargne, elle est susceptible de jouer un rôle dans la constitution et, plus encore, le placement de cette épargne. D›actualité ensuite, les écarts de fiscalité entre produits financiers pouvant induire des risques de délocalisation de l›épargne, non-négligeables dans un espace financier européen en voie d›intégration avec harmonisation de facto au «moins disant fiscal», tout en se rappelant que les mouvements de capitaux sont désormais mondialisés avec la levée générale du contrôle des changes.
When the Going Gets Tough... Financial Incentives, Duration of Unemployment and Job-Match Quality In the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60% to 50% after 180 days of unemployment for all spells beginning on July 15, 2012. Using Social Security data and a Differences-inDifferences approach, we find that reducing the RR by 10 percentage points (or 17%) increases workers' odds of finding a job by at least 41% relative to similar workers not affected by the reform. To put it differently, the reform reduced the mean expected unemployment duration by 5.7 weeks (or 14%), implying an elasticity of 0.86. We find strong behavioral effects as the reform reduced the expected unemployment duration right from the beginning of the unemployment spell. While the reform had no effect on wages, it did not decrease other measures of post-displacement job-match quality. After 15 months, the reform decreased unemployment insurance expenditures by 16%, about half of which are explained by job seekers' behavioral changes. JEL Classification: C41, J64
This chapter provides a review of some implications of demographic shift arising from population aging for fiscal policy, taxation policy, and social security settings. The key implications of population aging that have been forthcoming from the many national and international macroeconomic modeling studies are presented. These implications are that population aging will put significant stress on governments’ fiscal situations under current policy settings. Consideration of policy options to accommodate population aging leads to examination of age-dependent taxation, the means testing of social security benefits, general taxation and pension design, and the analysis of taxation policy over time. The chapter concludes with some comments on the nature of the literature reviewed and on possible directions for future research.
The paper explores the impact of credit constraints on rural households’ consumption expenditure in South China. Previous studies have ignored the endogeneity between the credit constraints and consumption expenditure. We use two instrumental variables to resolve this problem. Our results show 54.9% of the respondents are credit constrained. The instrument variable model results reveal that the percentage rural households’ consumption expenditures who are credit constrained is 7.34% less than those who are not credit constrained. These results suggest that relaxing the credit constraints helps to improve the rural households’ consumption expenditures in developing countries.
This paper empirically analyzes the effects of tax shocks on private consumption
expenditures in Turkey. For this purpose, private consumption expenditures are
firstly decomposed into four major categories and then to which structural VAR
(SVAR) model is employed using a data set for the period 2003:Q1–2013:Q3. The
empirical findings of the paper show that both in the short and long run, private
consumption expenditures are affected by value-added tax (VAT) and personal
income tax. However, it is important to highlight that VAT plays a more
important role in influencing private consumption expenditures than the
other taxes under consideration. Overall, the findings reveal that the effects of
tax shocks on private consumption expenditures vary depending on the types
of taxes, components of the private expenditures, and length of the period.
This paper empirically analyzes the effects of tax shocks on private consumption
expenditures in Turkey. For this purpose, private consumption expenditures are
firstly decomposed into four major categories and then to which structural VAR
(SVAR) model is employed using a data set for the period 2003:Q1–2013:Q3. The
empirical findings of the paper show that both in the short and long run, private
consumption expenditures are affected by value-added tax (VAT) and personal
income tax. However, it is important to highlight that VAT plays a more
important role in influencing private consumption expenditures than the
other taxes under consideration. Overall, the findings reveal that the effects of
tax shocks on private consumption expenditures vary depending on the types
of taxes, components of the private expenditures, and length of the period.
Until the 1930s parsimony was considered a virtue. In the standard Keynesian system, saving became a socially undesirable activity in industrial countries. In recent years saving has, once again, become a highly desirable national objective. Notwithstanding these ups and downs in attitudes toward saving, the theory of saving remains one of the less-developed areas in economics.1 Saving’s relationship with the distribution of income and wealth is even more hazy. The main reason for the absence of a well-developed theory of saving is the intertemporal nature of multiple, interrelated choices involved for saving and the difficulty in finding the right kinds of data for empirical tests.2 The problems in the development of a dependable relationship between saving and distribution are created, in addition, by a parallel lack of a coherent general theory of personal distribution of income (Sahota, 1978; Sahota and Rocca, 1985) and a relative inattention to this topic among economists.
In this chapter some new evidence is presented on the subject of the interest elasticity of consumers’ expenditure based on UK data. We find that, although the issue is by no means settled, the weight of evidence does seem to favour what Boskin (1987) calls a ‘modest positive interest elasticity of private saving’. Moreover, interest rate effects appear to have increased (in both size and significance) during the 1980s, a period in which competition in UK financial markets has increased as a result of the Government’s policy of deregulation. This liberalization has led to a weakening of the liquidity constraints which previously restricted households’ choice and, although this will have had the effect of permitting consumers to move closer to their desired (life-cycle) levels of expenditure (since they may now find it easier to borrow through periods when income is temporarily low, thus maintaining a smoother consumption profile over time), at the same time the proportion of households that are likely to react to changes in interest rates will have risen. Our findings suggest that the latter effects may dominate, at least in the short run, implying that the leverage of monetary policy may have been strengthened as a result of deregulation of the financial markets.
Das SchluBreferat bietet die Möglichkeit, die engeren, durch das Tagungsthema abgesteckten Grenzen etwas zu überschreiten und dabei bereits die Brücke zur nächsten Tagung zu schlagen, die sich mit Problemen des Arbeitsmarktes befassen wird. Finanzmärkte und Finanzierungsfragen stehen bei den folgenden Betrachtungen ganz im Hintergrund, spielen aber für die im zweiten Teil des Referates erörterten Fragen eine zentrale Rolle. Kapitalmärkte sind das Vehikel für die dort zur Diskussion stehende internationale Mobilität der Finanzvermögen.
This paper is focused on the retail core banking services market. The demand side of this market is affected by the negative effects of the information asymmetry. European Union authorities are aware of that as they monitor the situation as well as they set out possible solutions that should reduce the main sources of asymmetry - offer opacity and the lack of offer comparison tools. In the Czech Republic there was introduced independent comparison tool project in the 2010. This system's database holds more than 15,000 answers about the day-to-day usage. This serves as a data source for our analysis. The aim is to classify the Czech working age e-banking clients, i.e. to identify basic retail core banking services usage patterns. As preparations there were performed verification-validation phase, logarithmical transformation and dimension reduction by principal component analysis. The two-step cluster analysis was performed on 8,549 members classified by 19 variables concerning the type of the service, moth usage frequency or average amount of money, communication channel used to order the service and the bank the money were transferred to. Analysis indentified as an optimal number of clusters 3. There were identified mainstream client, more active client and the client with the "at the desk" preference. Sub-optimal, but still acceptable, solution was consisted of 4 clusters: mainstream client with his or hers own bank preference, mainstream client with other bank preference, less active client and "at the desk" preference client. Identified clusters don't just describe the demand side as standard marketing research output but they can be used again as an information asymmetry reduction tool.
Although many economists, most notably Strotz, have discussed dynamic inconsistency and precommitment, none have dealt directly with the essence of the problem: self-control. This paper attempts to fill that gap by modeling man as an organization. The Strotz model is recast to include the control features missing in his formulation. The organizational analogy permits us to draw on the theory of agency. We thus relate the individual's control problems with those that exist in agency relationships.
Recent empirical studies have found that consumption is more sensitive to current income than simple versions of the life-cycle, permanent income hypothesis would predict. The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate a distribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate fraction of consumers facing a binding borrowing constraint is shown to exhibit positive serial correlation in the face of serially uncorrelated income shocks.
Several recent papers have tested the permanent income-cum-rational expectations hypothesis using data on nondurable or semidurable
consumption. We show how this approach can be extended to the case of durables. An application to panel data on automobile
expenditures reveals no evidence against the permanent income hypothesis. This result is unchanged in subsamples segregated
by family holdings of liquid assets.
This paper examines the effect of liquidity constraints on consumption expenditures using a single-year cross-section data
set. A reduced-form equation for consumption is estimated on high-saving households by the Tobit procedure to account for
the selectivity bias. Since high-saving households are not likely to be liquidity constrained, the estimated equation is an
appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the
variables available in the cross-section data. When the reduced-form equation is used to predict desired consumption, the
gap between desired consumption and measured consumption is most evident for young households.
Approximating the Efficiency Gain of Tax Reforms 48. Summers, "Capital Taxation See also the qualifications of Summers's results in EvansTax PolicyConversion to a Consumption Tax 1. I discuss instrument choice in the context of savings policy in Lawrence H. Summers
- Jerry R Green
- Eytan Sheshinski Seidman
For a criticism of Feldstein's approximations of loss measures, see Jerry R.
Green and Eytan Sheshinski, "Approximating the Efficiency Gain of Tax Reforms,"
Journal of Public Economics, vol. 11 (April 1979), pp. 179-95.
48. Summers, "Capital Taxation." See also the qualifications of Summers's results
in Evans, "Tax Policy," and Seidman, "Conversion to a Consumption Tax."
1. I discuss instrument choice in the context of savings policy in Lawrence H. Summers,
"Issues in National Savings Policy," in F. Gerard Adams and Susan M. Wachter, eds.,
Savings and Capital Formation: The Policy Options (D.C. Heath and Co., 1986), pp. 65-
88.
Capital Taxation 46. FeldsteinThe Welfare Cost
- See
- Summers
See, for example, Summers, "Capital Taxation."
46. Feldstein, "The Welfare Cost."