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Journal Article
The dynamic impact of fundamental tax reform part 1: the basic model
The Internal Revenue Service remains unpopular, the U.S. savings rate remains low, and pressure to efficiently raise significant new tax revenues seems certain to grow once the baby boom generation reaches retirement age. Consequently, it is likely that alternatives to the current income tax system will receive substantial political and media attention in coming years. In this first of two articles on the economic impact of fundamental tax reform, Evan Koenig and Gregory Huffman describe a framework for analyzing how the adoption of a flat-rate consumption tax would affect the economy over ...
Working Paper
The political economy of endogenous taxation and redistribution
This paper examines a simple dynamic model in which agents vote over capital income taxation and redistributive transfers. We show that in equilibrium the typical agent's preferences over the tax rate are single-peaked and derive a closed-form solution for the majority-rule tax rate. We also show that high levels of initial wealth inequality can place the economy on the 'wrong side of the Laffer curve'.
Journal Article
The dynamic impact of fundamental tax reform part 2 : extensions
In this second of two articles on the economic impact of fundamental tax reform, Gregory Huffman and Evan Koenig extend their earlier framework for analyzing how the adoption of a flat-rate consumption tax would affect the economy over time. They argue that if tax reform is to be successful in stimulating investment and raising long-run living standards, then it is important that ways be found to avoid increasing the rate of labor-income taxation. Increases in labor-income tax rates can undo the positive economic effects of a cut in the rate of capital-income taxation. Conversely, cuts in ...
Working Paper
The accuracy of the grid approximation method
Report
On the existence and uniqueness of nonoptimal equilibria in dynamic stochastic economies
The question of the existence and uniqueness of a stationary equilibrium for distorted versions of the standard neoclassical growth model is addressed in this paper. The conditions presented guaranteeing the existence and uniqueness of nontrivial equilibrium for the class of economies under study are simple and intuitively appealing, while the existence and uniqueness proof developed is elementary. Examples are presented illustrating that economies with distortional taxation, endogenous growth with externalities, and monopolistic competition can all fit into the framework developed.
Working Paper
On the political economy of immigration
Working Paper
On the political economy of immigration and income redistribution
In this paper, we study several general equilibrium models in which the agents in an economy must decide on the appropriate level of immigration into the country. Immigration does not enter directly into the native agents' utility functions, and natives have identical preferences over consumption goods. However, natives may be endowed with different amounts of capital, which alone gives rise to alternative levels of desired immigration, We show that the natives' preferences over desired levels of immigration are influenced by the prospect that new immigrants will be voting in the future, ...
Working Paper
Inequality, inflation, and central bank independence
What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to ...