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ABSTRACT: This paper analyzes optimal, time consistent taxation in a dynastic family model with human and physical capital and with a balanced government budget. When tax revenue is used for publicly provided consumption or lump-sum transfers, leisure would be higher than its social optimum. Pareto optimal taxation requires taxing capital income more heavily than labour income and subsidizing investment at the same rate of the tax. Also, it requires either subsidizing labour at the same rate as a consumption tax or subsidizing consumption at the same rate as a labour income tax, and hence it is not a practical guide to policy. Further, a consumption tax, or equivalently a uniform income tax with investment subsidies at the same rate, can be improved on by taxing capital income more heavily than labour income.
Canadian Journal of Economics. 01/2009; 42(3):1023-1049.
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ABSTRACT: We give semiparametric identification and estimation results for econometric models with a regressor that is endogenous, bound censored and selected,called a Tobin regressor. First, we show that true parameter value is set identified and characterize the identification sets. Second, we propose novel estimation and inference methods for this true value. These estimation and inference methods are of independent interest and apply to any problem where the true parameter value is point identified conditional on some nuisance parameter values that are set-identified. By fixing the nuisance parameter value in some suitable region, we can proceed with regular point and interval estimation. Then, we take the union over nuisance parameter values of the point and interval estimates to form the final set estimates and confidence set estimates. The initial point or interval estimates can be frequentist or Bayesian. The final set estimates are set-consistent for the true parameter value, and confidence set estimates have frequentist validity in the sense of covering this value with at least a prespecified probability in large samples. We apply our identification, estimation, and inference procedures to study the effects of changes in housing wealth on household consumption. Our set estimates fall in plausible ranges, significantly above low OLS estimates and below high IV estimates that do not account for the Tobin regressor structure.
Journal of Population Economics 01/2009; 22(1):75-95. · 0.92 Impact Factor
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ABSTRACT: This paper investigates the determinants of long-run unemployment and growth by extending the endogenous growth model of Howitt and Aghion (1998) to allow for a more general treatment of the labor market in the spirit of Pissarides (1990). We find that (i) both long-run growth and unemployment depend not only on factors that affect long-run growth as identified in endogenous growth models with full employment, but also on certain labor market parameters; (ii) long-run unemployment may rise or fall with growth depending on the model's parameters; and (iii) though government policies that promote growth indirectly through improvement in labor market efficiency always reduce the long-run unemployment rate, policies that directly encourage investment in research and development may increase the unemployment rate.
Southern Economic Journal 01/2008; 74(3):775-793. · 0.63 Impact Factor
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ABSTRACT: In a neoclassical growth model with public consumption, we show the following Pareto optimal tax rules. The government should tax leisure and private consumption at the same rate, and subsidize net investment at the same rate it taxes net capital income. Also, it should tax capital income more heavily than labor income. In an extension for home production, the additional rule is to tax investment for home production at the same rate of the tax on private market consumption. These tax and subsidy rates should be constant over time except the initial tax rate on capital income.
Journal of Public Economics. 01/2008; 92(3-4):885-896.
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ABSTRACT: After the 11 September tragedy, 20% of the scheduled US airline flights were cancelled and the passenger load factor was down to 56% from 66.6% a year ago. Was the high death toll or the nature of the attack itself responsible for this dramatic decline? Using the US data, we find that the demand for air travel did fall in years of relatively high fatality rate, but the demand is not sensitive to whether the high fatality rate is due to any terrorist activities. Our estimation results suggest that even after controlling for the sharp increase in the fatality rate because of the 11 September tragedy, a considerable proportion of the decline in demand for air travel that year is still unexplained. This evidence could suggest that there has been a fundamental shift in consumers' perception of air travel safety in the aftermath of the tragedy.
Applied Economics. 02/2007; 39(14):1773-1781.
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ABSTRACT: Intergenerational earnings mobility is analyzed in a model where human capital is produced using schooling and parental time. In steady states more mobile societies have less inequality, but in the short run higher mobility may result from an increase in inequality. Starting from the same inequality, mobility is higher under public than under private education. A rise in income shocks, for example due to increased returns to ability, or a switch from public to private schooling both increase inequality. However, increased shocks raise mobility in the short run and do not affect it in the long run, whereas an increased role for private schooling reduces mobility in both the short and long run. That these differences may help to identify the source of changes in inequality, and other real-world implications, are illustrated in a brief discussion of time trends and cross-country differences. Copyright The editors of the "Scandinavian Journal of Economics", 2005 .
Scandinavian Journal of Economics 02/2005; 107(3):399-417. · 0.51 Impact Factor
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ABSTRACT: This paper examines the problem of optimal tax mix analytically in a two-sector growth model with transitional dynamics. Tax revenue is required to provide a pure public good. The key problems are: over-consumption of leisure under labor income or consumption taxes; and under-investment in human and physical capital under income taxes. Without investment subsidies, consumption taxes do better than uniform income taxes, but can be improved on locally via positive taxation of physical capital income and a negative tax on labor income. With subsidies the first best can be achieved in a system where: (i) consumption and labor income taxes are either zero or of the same rate but opposite signs; (ii) physical capital income taxes are used either exclusively or more heavily than labor income taxes when their rates are below 100%; and (iii) investment subsidy rates equal income tax rates for both forms of capital, respectively. In any given circumstances, a range of alternative tax mixes may provide equivalent results. This result, combined with practical constraints, may help to explain the variety of tax mixes observed across countries.
01/2001;
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ABSTRACT: This paper considers optimal taxation in an endogenous growth model where private education investments are imperfectly observable. Consumption taxation is better than labor income taxation for public provision of goods unless educational investment is completely unobservable. If subsidies are feasible for observed education investment, the consumption tax rate is independent of the degree of observability but the subsidy rate is higher the lower is the observability. If subsidies are not feasible, the consumption tax rate is lower the more limited is the observability. Optimal tax rates for goods that provide consumption and education investment simultaneously are below normal rates for observed pure consumption. Growth and welfare are positively related to (independent of) the degree of observability without (with) subsidies.
Journal of Public Economics.
