Article

Rising Government Debt Under Labor Endogeneity

January 2016
SSRN Electronic Journal

DOI:10.2139/ssrn.2746062

Authors:

Devika Hazra

California State University Los Angeles

ResearchGate has not been able to resolve any citations for this publication.

ResearchGate has not been able to resolve any references for this publication.

Article

A note on interpreting consumption tax incidence in OLG models

January 1998

Niels Kleis Frederiksen

This note discusses the generational incidence of consumption taxes in an OLG framework. The objective is to highlight the channels through which an increase in, e.g., a VAT redistributes income across generations. It turns out that with labor supply exogenous VAT incidence is very similar to the impact of a PAYG pension system or government debt.

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The Changing Role Of The City Centre In Adelaide And Melbourne

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It is not too often that sufficient similarities and comparable data enable us to make significant comparisons between the central areas of Australian capital cities. This article presents such material about Adelaide and Melbourne. In particular, it takes advantage of floorspace and employment surveys carried out in these central areas in 1987 and 1992 to identify not only trends but important ... [Show full abstract] points of similarity and difference. Some of the more important reasons for these changes are canvassed in the context of current literature. The different policy responses of the two state governments and central city authorities are also examined as there has been a change in both cities to a state Liberal government following Labor governments which have incurred heavy financial losses and increased state debt.

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Neoclassical growth models predict that reductions in capital or labor tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting ... [Show full abstract] intertemporal distortions, current tax cuts can be contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.

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This paper examines the effects of debt and distortionary labor taxation on the long-run behavior of the relative price of nontraded goods. At the theoretical level, in a two-sector open economy model we demonstrate that higher public debt, associated with higher taxation, contracts labor supply in both traded and nontraded goods sectors. Relative prices move inversely with relative supply shifts ... [Show full abstract] which, in turn, depend on relative factor intensities. At the empirical level, for a panel of advanced economies, we find statistically significant effects of public debt and taxes on the relative price of nontraded goods, with higher debt and taxes associated with higher relative prices.

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This paper analyses long-term fiscal sustainability with a model which incorporates a number of feedback effects. When fiscal policy responds to ensure long-term sustainability, these feedback effects can potentially modify the intended outcomes by either enhancing or dampening the results of the policy interventions. The feedbacks include the effect on labour supply in response to changes in tax ... [Show full abstract] rates, changes in the country risk premium in response to higher public debt ratios, and endogenous changes in the rate of productivity growth and savings that respond to interest rates. A model of government revenue, expenditure and public debt which incorporates these feedbacks is used to simulate the outcome of a range of fiscal policy responses. In addition, the effects of population ageing and productivity growth are explored.

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Alleviating Tax Distortion by Subsidizing Private Donation to Public Goods

January 2015 · SSRN Electronic Journal

Ryo Ishida

Many industrialized countries implement a policy to enhance private donations to public goods, i.e. tax deduction for charitable donation or further aggressive tax credit. There are already many theories supporting such favorable policies for private donations. However, there is another reason why such policies are favorable from the viewpoint of social welfare; if properly designed, such ... [Show full abstract] policies not only increase voluntary provision to public goods but also alleviate tax distortion on labor supply. When government’s policy increases net-of-subsidy private donations, it inevitably decreases individual private consumption. Therefore, the marginal utility for consumption increases, which results in increase in labor supply. As labor supply is normally suppressed by the decrease of net-of-tax wage rate, such an enhancement effect on labor supply caused by government’s policy alleviates the tax distortion on labor supply. This mechanism is strengthened if Edgeworth complementarity is considered between public good and private consumption. Such a mechanism has not been reported out so far but should be considered carefully where many countries which have accumulated huge amount of government debt are inevitably going to increase tax rate.

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January 1997

P Belan

We consider an overlapping generations model with endogenous labor supply. Individuals live for two periods and have different skills. We state equivalence properties of different transfer policies, assuming the government cannot identify individuals and has a limited range of instruments that contains public debt and taxes of transfers in both periods of life of each agent.

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Public Debt in a Basic Endogenous Growth Model

January 2012 · Economic Modelling

Alfred Greiner

In this note we work out the mechanism that makes public debt affect the allocation of resources in the long-run. To do so we analyze an AK growth model with elastic labour supply and a government sector. The government levies a distortionary income tax and issues bonds to finance both lump-sum transfers and non-distortionary public spending. We show that the long-run growth rate is the smaller ... [Show full abstract] the higher the debt ratio if the government adjusts public spending to meet its intertemporal budget constraint. If the government adjusts lump-sum transfers to fulfill its intertemporal budget constraint the public debt ratio does not affect the balanced growth rate.

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October 2012 · SSRN Electronic Journal

The U.S. Government’s intervention in Chrysler LLC’s bankruptcy resulted in secured creditors receiving substantially less than the face value of their claims while an unsecured creditor, the UAW, received a substantial payment in exchange for their claims. We observe an increase in borrowing costs (changes in loan spreads and bond returns) for firms that are seen to have weakened creditor rights ... [Show full abstract] as a result of the precedent set in the Chrysler bankruptcy. Our findings underscore the potential costs of increased uncertainty about the enforcement of creditor rights and the potential impact of the government and labor on debt contracting relationships.

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Should Fiscal Policy be different in a Non-Competitive Framework?

February 2003 · Journal of Monetary Economics

Arantza Gorostiaga

This paper studies if imperfections in the labor market justify a different fiscal policy. We present a dynamic general equilibrium model with a Ramsey planner deciding about public spending, labor taxes and debt. Two different labor market setups are considered. First we assume a competitive labor market and then we introduce a union with monopoly power. Both models reach the same conclusion as ... [Show full abstract] regards to the cyclical properties of the optimal policy: it is not optimal to implement a countercyclical fiscal policy. We also find that government spending should be larger under perfect competition. These main results arise both under complete and incomplete markets for the debt.

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April 2007

Emanuele Canegrati

In this paper I will introduce a new political economy model, where there exists a competition amongst two political candidates, which aim to set a policy which enables them to win elections, max- imising the probability of winning. I will show that, if taxes neces- sary to repay the debt are not lump sum but proportional to income, we have dramatic distorting effect on the labour supply. The ... [Show full abstract] prob- lem is exacerbate once we take into account that the Government set taxes in order to favour the most in‡uencing social group. As a consequence, effective marginal tax rates are differentiated amongst social groups and thus the burden of public debt is not equally borne.

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Should Fiscal Policy be Different in a Non-Competitive Framework?

January 1999

Arantza Gorostiaga

This paper aims to study if imperfections in the labor market justify a fiscal policy where public spending, labor income tax rates and debt are set to stabilize output. We present a dynamic general equilibrium model and solve for the optimal policy considering two different labor market setups. First we assume a competitive labor market and then we introduce a union with monopoly power in the ... [Show full abstract] labor market. Both models reach the same conclusion as regards the stabilization policy: it is not optimal to use the fiscal policy to stabilize. We also find that government spending should be larger when a competitive labor market is assumed. These main results arise both under complete and incomplete markets for the debt.

Last Updated: 22 Oct 2024

Rising Government Debt Under Labor Endogeneity

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