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We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring ”constant Frisch elasticity” (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.

Zonder onderwerpscode: economie

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We propose a monetary model in which the unemployed satisfy the official US definition of unemployment: they are people without jobs who are (i) currently making concrete efforts to find work and (ii) willing and able to work. In addition, our model has the property that people searching for jobs are better off if they find a job than if they do not (i.e., unemployment is 'involuntary'). We integrate our model of involuntary unemployment into the simple New Keynesian framework with no capital and use the resulting model to discuss the concept of the 'non-accelerating inflation rate of unemployment'. We then integrate the model into a medium sized DSGE model with capital and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to the three shocks.

Zonder onderwerpscode: economie

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We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.

Zonder onderwerpscode: economie

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The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policy makers is how to assess the relative strength of those forces. Dynamic Stochastic General Equilibrium (DSGE) models are the leading framework that macroeconomists have for dealing with this challenge in an open and transparent manner. This paper reviews the state of DSGE models before the financial crisis and how DSGE modelers responded to the crisis and its aftermath. In addition, we discuss the role of DSGE models in the policy process.

Zonder onderwerpscode: economie