Asset Prices, Business Cycles, and Markov-Perfect Fiscal Policy when Agents are Risk-Sensitive

We study a business cycle model in which a benevolent fiscal authority must determine the optimal provision of government services, while lacking credibility, lump-sum taxes, and the ability to bond finance deficits. Households and the fiscal authority have risk sensitive preferences. We find that outcomes are affected importantly by the household's risk sensitivity, but not by the fiscal authority's. Further, while household risk-sensitivity induces a strong precautionary saving motive, which raises capital and lowers the return on assets, its effects on fluctuations and the business cycle are generally small, although more pronounced for negative shocks. Holding the stochastic steady state constant, increases in household risk-sensitivity lower the risk-free rate and raise the return on equity, increasing the equity premium. Finally, although risk-sensitivity has little effect on the provision of government services, it does cause the fiscal authority to lower the income tax rate. An additional contribution of this paper is to present a method for computing Markov-perfect equilibria in models where private agents and the government are risk-sensitive decisionmakers.

Fiscal multipliers in a two-sector search and matching model

This paper evaluates the effects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour markets with skilled and unskilled workers and on-the-job-learning (OJL) within and across skill types. We first find that, the model does a good job at matching the cyclical properties of sectoral employment and the wage-skill premium. We next find that vacancy subsidies for skilled and unskilled jobs lead to output multipliers which are greater than unity with OJL and less than unity without OJL. In contrast, the positive output effects from cutting skilled and unskilled income taxes are close to zero. Finally, we find that the sectoral and aggregate effects of vacancy subsidies do not depend on whether they are financed via public debt or distorting taxes.

US Monetary and Fiscal Policies - Conflict or Cooperation?

Most of the literature estimating DSGE models for monetary policy analysis ignores fiscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both fiscal and monetary policy to be described by rules and/or optimal policy which are subject to switches over time. We find that US monetary and fiscal policy have often been in conflict, and that it is relatively rare that we observe the benign policy combination of an conservative monetary policy paired with a debt stabilizing fiscal policy. In a series of counterfactuals, a conservative central bank following a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. However, if policy makers cannot credibly commit to such a regime, monetary accommodation of the prevailing fiscal regime may actually be welfare improving.

Fiscal Federalism at the Ballot Box : The Relevance of Expressive Voting

This paper explores the impact of citizens' motivation to vote on the pattern of fiscal federalism. If the only concern of instrumental citizens was outcome they would have little incentive to vote because the probability that a single vote might change an electoral outcome is usually minuscule. If voters turn out in large numbers to derive intrinsic value from action, how will these voters choose when considering the role local jurisdictions should play? The first section of the paper assesses the weight that expressive voters attach to an instrumental evaluation of alternative outcomes. Predictions are tested with reference to case study analysis of the way Swiss voters assessed the role their local jurisdiction should play. The relevance of this analysis is also assessed with reference to the choice that voters express when considering other local issues. Textbook analysis of fiscal federalism is premised on the assumption that voters register choice just as 'consumers' reveal demand for services in a market, but how robust is this analogy.

El Régimen de amortización fiscal del Fondo de Comercio Financiero Internacional: su tratamiento jurídico como Ayuda de Estado. Problemas jurídicos planteados

El Dret Financer-Tributari d’un estat membre es doblega a les directrius i als objectius d’harmonització contemplats al bloc normatiu comunitari de la Unió Europea. La incidència i l’impacte del Dret Comunitari sobre la sobirania fiscal dels seus integrants és evident, sotmetent i delimitant determinantment les mesures fiscals a finalitats extrafiscals. Un clar exemple d’aquest fenomen el constitueix la qualificació del règim espanyol d’amortització fiscal del Fons de Comerç Financer Internacional (previst a l’article 12.5 del TRLIS) com ajut d’Estat per part de la Comissió Europea. L’anàlisi jurídic que aborda aquest treball sobre l’evolució i Decisió final d’aquest expedient d’ajut d’Estat en particular, permet concloure que, l’existència, d’una banda, d’una concepció genèrica i indeterminada de la institució d’ ajut d’Estat i, de l’altre, d’un soft law comunitari que dóna contingut a l’esmentada institució i que ha estat evacuat per el propi organisme encarregat de decidir sobre aquests expedients (la Comissió Europea), esbossen un instrument discrecional d’harmonització fiscal negativa en seu de la imposició directa al marc de la Unió Europea. En efecte, la presència de la regla d’unanimitat en la presa de decisions en matèria tributaria des de els organismes comunitaris i l’absència d’una norma d’harmonització comunitària en seu d’imposició directa, propicien una notable inseguretat jurídica a l’hora de dissenyar beneficis fiscals per part dels legisladors d’un Estat. Mesures fiscals, que en cas de ser qualificades contràries a l’ordenament comunitari per part de la Comissió Europea, com al cas que ens ocuparà aquí, despleguen conseqüències especialment greus per als operadors econòmics que s’han beneficiat d’aquesta i que distorsionen la seva voluntat a la presa de decisions a posteriori i amb efectes retroactius. És necessari als efectes de dotar una major seguretat jurídica al sistema comunitari d’imposició directa, la substitució de la regla d’unanimitat per la de majories simples o qualificades, la voluntat de cedir parcel•les de sobirania fiscal per part dels Estats membre i Reglaments, per tal d’evitar d’arrel el fenomen de la desharmonització en aquest àmbit, així com l’ús abusiu d’instruments arbitraris d’harmonització fiscal negativa.

Economic growth and inequality: the role of fiscal policies

This paper analyses the impact of different instruments of fiscal policy on economic growth as well as on income inequality, using an unbalanced panel of 43 upper-middle and high income countries for the period 1972-2006. We consider and estimate two individual equations explaining growth and inequality in order to assess the incidence of different fiscal policies. Firstly, our approach considers imposing orthogonal assumptions between growth and inequality in both equations, and secondly, it allows growth to be included in the inequality equation, and inequality to be included in the growth equation. The empirical results suggest that an increase in the size of government measured through current expenditures and direct taxes diminishes economic growth while reducing inequality, being public investment the only fiscal policy that may break this trade-off between efficiency and equity, since increases in this item reduces inequality without harming output. Therefore, the results reflect that the trade-off between efficiency and equity that governments often confront when designing their fiscal policies may be avoided.

Fiscal foresight and the effects of government spending

We study the effects of government spending by using a structural, large dimensional, dynamic factor model. We find that the government spending shock is non-fundamental for the variables commonly used in the structural VAR literature, so that its impulse response functions cannot be consistently estimated by means of a VAR. Government spending raises both consumption and investment, with no evidence of crowding out. The impact multiplier is 1.7 and the long run multiplier is 0.6.

Fiscal policy, foresight and the trade balance in the U.S.

This paper investigates the effects of fiscal policy on the trade balance using a structural factor model. A fiscal policy shock worsens the trade balance and produces an appreciation of the domestic currency but the effects are quantitatively small. The findings match the theoretical predictions of the standard Mundell-Fleming model, although fiscal policy should not be considered one of the main causes of the large US external deficit. My conclusions differ from those reached using VAR models since the fiscal shock, possibly due to fiscal foresight, is nonfundamental for the variables typically used in open economy VARs.

Crisis y transformación fiscal del Estado español

Análisis del origen, evolución y perspectivas del modelo de financiación autonómica español, de corte federal, en el marco de la crisis del Estado