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Jel Classification:H30 

Discussion Paper
Financing workforce development in a devolutionary era

Workforce development financing has changed significantly over the last 25 years. In 2008, federal funding for the traditional workforce development system was 83 percent lower in real terms than it had been in 1980. As the federal system plays a smaller role in workforce development financing, the job training landscape better represents a "marketplace" where students and job seekers use federal training vouchers and grant and student loan money from various sources, primarily the Higher Education Act's Pell Grant and Federal Student Loan programs. Additionally, increasing volatility in ...
FRB Atlanta Community and Economic Development Discussion Paper , Paper 2016-2

Report
Identifying shocks via time-varying volatility

An n-variable structural vector auto-regression (SVAR) can be identified (up to shock order) from the evolution of the residual covariance across time if the structural shocks exhibit heteroskedasticity (Rigobon (2003), Sentana and Fiorentini (2001)). However, the path of residual covariances can only be recovered from the data under specific parametric assumptions on the variance process. I propose a new identification argument that identifies the SVAR up to shock orderings using the autocovariance structure of second moments of the residuals, implied by an arbitrary stochastic process for ...
Staff Reports , Paper 871

Working Paper
Optimal Fiscal Policies under Market Failures

The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (modified golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital may be over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in ...
Working Papers , Paper 2020-002

Working Paper
Don’t Tax Capital — Optimal Ramsey Taxation in Heterogeneous Agent Economies with Quasi-Linear Preferences

We build a tractable heterogeneous-agent incomplete-markets model with quasi-linear preferences to address a set of long-standing issues in the optimal Ramsey taxation literature. The tractability of our model enables us to analytically prove the existence of a Ramsey steady state and establish several novel results: (i) In the absence of any redistributional effects of capital taxation or lump-sum transfers, the optimal capital tax is exclusively zero in a Ramsey steady state regardless of the modified golden rule (MGR) and government debt limits. (ii) Whether the MGR holds or not depends ...
Working Papers , Paper 2019-007

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty

We use an analytically tractable model to show that the Ramsey planner's decisions to finance stochastic public expenditures under uninsurable idiosyncratic risk implies a departure from tax smoothing. In the absence of state-contingent bonds the government's attempt to balance the competing incentives between tax smoothing and individual consumption smoothing---even at the cost of extra tax distortion---implies a bounded stochastic unit root component in optimal taxes. Nonetheless, a sufficiently high average level of public debt to support individuals’ self-insurance position is welfare ...
Working Papers , Paper 2019-038

Working Paper
Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk

A positive national debt is often rationalized either by the assumption of dynamic inefficiency in an overlapping-generations (OLG) model, or by the hypothesis of heterogeneous-agents and incomplete-markets (HAIM) in an infinite horizon model. Both assumptions imply insufficient private liquidity to support private saving and investment, thus calling for a positive level of public debt to improve social welfare. However, since public debt is financed often by distortionary future taxes, optimal debt and tax policies ought to be studied jointly in a single framework. In this paper we use a ...
Working Papers , Paper 2020-007

Working Paper
Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk

A positive national debt is often rationalized either by the assumption of dynamic inefficiency in an overlapping-generations (OLG) model, or by the hypothesis of heterogeneous-agents and incomplete-markets (HAIM) in an infinite horizon model. Both assumptions imply insufficient private liquidity to support private saving and investment, thus calling for a positive level of public debt to improve social welfare. However, since public debt is financed often by distortionary future taxes, optimal debt and tax policies ought to be studied jointly in a single framework. In this paper we use a ...
Working Papers , Paper 2020-007

Working Paper
Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk

The rapidly growing national debt in the U.S. since the 1970s has alarmed and intrigued the academic world. Consequently, the concept of dynamic (in)efficiency in an overlapping generations (OLG) world and the importance of the heterogeneous-agents and incomplete markets (HAIM) hypothesis to justify a high debt-to-GDP ratio have been extensively studied. Two important consensus emerge from this literature: (i) The optimal quantity of public debt is positive—due to insufficient private liquidity to support private saving and investment (see, e.g., Barro (1974), Woodford (1990), and Aiyagari ...
Working Papers , Paper 2020-007

Working Paper
Sovereign Default and Monetary Policy Tradeoffs

The paper is organized around the following question: when the economy moves from a debt-GDP level where the probability of default is nil to a higher level?the ?fiscal limit?? where the default probability is non-negligible, how do the effects of routine monetary operations designed to achieve macroeconomic stabilization change? We find that the specification of the monetary policy rule plays a critical role. Consider a central bank that targets the risky rate. When the economy is near its fiscal limit, a transitory monetary policy contraction leads to a sustained rise in inflation, even ...
Research Working Paper , Paper RWP 18-2

Working Paper
Optimal Ramsey Capital Income Taxation —A Reappraisal

This paper addresses a long-standing problem in the optimal Ramsey capital taxation literature. The tractability of our model enables us to solve the Ramsey problem analytically along the entire transitional path. We show that the conventional wisdom on Ramsey tax policy and its underlying intuition and rationales do not hold in our model and may thus be misrepresented in the literature. We uncover a critical trade off for the Ramsey planner between aggregate allocative efficiency in terms of the modified golden rule and individual allocative efficiency in terms of self-insurance. Facing the ...
Working Papers , Paper 2017-24

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