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Journal Article
The long (and short) on taxation and expenditure policies
Much of the 1992 presidential campaign focused on which fiscal policies would best promote economic growth. In this article, Zsolt Becsi develops an analytical and graphical framework to evaluate the long- and short-run effects of a variety of taxation and expenditure policies. ; Becsi shows that many tax schemes in their macro-economic effects are essentially taxes on labor or capital or both. While taxes on labor and capital both tend to depress private consumption and output in the long run, Becsi shows that a revenue-neutral reduction of capital taxes and increase in labor taxes are ...
Working Paper
Heterogeneity and the welfare cost of dynamic factor taxes
The welfare costs of dynamic factor taxes are analyzed in a dynamic general equilibrium model with heterogeneous endowments, abilities, and tastes. Conventional functional form restrictions yield formulas for the transition effects and marginal welfare costs of factor taxes. Heterogeneity implies that taxes have feedback or distribution effects, beyond standard efficiency effects, that may lead to nonstandard aggregate dynamics. Also, marginal welfare costs vary systematically with initial distortions and agents' characteristics. Because factor taxes lower wealth inequality, equity gains ...
Working Paper
Adding bond funds to M2 in the P-star model of inflation
Journal Article
Economics and crime in the states
Polls identify crime as the number one public worry. Crime also exacts tremendous costs not factored into official measures of well-being, and it is a favorite subject of political campaign promises. However, the public seems largely unaware that crime responds to economic conditions and incentives and that the results of a substantial body of work by economists have important implications for public policy. ; This article introduces the economics and crime literature by describing a simple supply-and-demand crime model in which criminals supply crime, the public demands protection from ...
Working Paper
Wealth effects, heterogeneity and dynamic fiscal policy
Working Paper
Financial matchmakers in credit markets with heterogeneous borrowers
What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and where the composition of heterogeneous borrowers adjusts to satisfy equilibrium entry conditions. We find that enhanced liquidity causes entry by all borrowers and tends to benefit low-quality borrowers disproportionately. However, liquid credit markets may or may not be associated with higher output and ...
Journal Article
Do state and local taxes affect relative state growth?
The South has seen a remarkable economic rise during the past three decades. Was this growth a result of automatic forces or was it fueled by state and local tax policies? Traditional economic theory suggests that forces of convergence, not tax policies, have moved the southern states toward catching up with the rest of the nation. But more recent economic models recognize that convergence and low tax rates may not be mutually exclusive explanations for the South's stronger growth. ; This article presents an overview of relative state growth and relative state and local taxation from 1960 to ...
Working Paper
Endogenous market structures and financial development
Existing theories that emphasize the significance of financial intermediation for economic development have not addressed two important empirical facts: (i) the relationship between financial and real activities depends crucially on the stage of development, and (ii) financial and industrial market structures vary widely across otherwise similar countries. To explain these observations, we develop a dynamic general equilibrium model allowing for endogenous market structures in which financial deepening spurs real activity through intermediate product broadening. We show the possibility of ...
Journal Article
The shifty Laffer curve
Any number of U.S. politicians owe their success to emphasizing tax cutting. According to logic, voters are opting for fewer government services or for changes in the mix of services rendered. It is at this point that things become complicated, however, because what happens to expenditures influences how much revenue a government needs to collect. The author of this article observes that a good place to start in understanding the impacts of tax policy is with what is popularly known as the Laffer curve. This curve became famous early in the 1980s when tax rates fell but tax revenues did not ...