Taxes distributional effects essay

A Summary of Findings

Taxes distributional effects essay

Consumers become more reluctant to part with dollars, as they have been made worse off in the future and prefer to save. Unfortunately, after this steepening, the expenditure supply curve now intersects with the sticky-prices region of the expenditure demand curve.

What kind of interventions might we try to fix this? Conventionally, our first resort is to discourage financial saving and promote current expenditures by reducing interest rates: We have entered the liquidity trap, if you believe in such a thing. But we are certainly not out of potential of interventions.

Suppose we believe that the central bank is very, very good at setting expectations. Then… fig 7 That worked! Yay monetary policy, still potent at the zero bound!

But, we should be careful. Plus, perhaps engineering an uptick in inflation expectations is hazardous. Perhaps the central bank cannot set expectations precisely, so that there is a hazard of overshooting and generating inflation rather than just restoring equilibrium.

What if Everyone Became Frugal?

My two period setup is pretty Ricardian. Encouraging private spending through a taxes and transfers deficit in Period 1 only works if that deficit is not repaid by running a surplus in Period 2.

Taxes distributional effects essay

In this case, debt effectively repays itself over time, without ever requiring surpluses. If you think transfers that will never be paid for in taxes must increase the expected future price level, then in the immediate term, all that does is to reduce the scale of the program necessary to eliminate the output gap!

An increase future price level expectations, like the unfinanced transfer itself, renders the expenditure supply curve shallower, helping carry our equilibrium out of the recession region.

But this is not realistic: We do not have to restrict ourselves to taxes and transfers, but can have government deficit-spend on real goods and services directly. And when we tax-and-transfer, we can also redistribute. But I have played with variations in which government spends, rather than transfers its deficit, and with redistribution.

But is that a realistic assumption? However, governments do sometimes respond to recessions by adopting stimulus programs, which in rough approximation we can model very easily.Today during an otherwise terrible lecture on ADHD I realized something important we get sort of backwards. There’s this stereotype that the Left believes that human characteristics are socially determined, and therefore mutable.

The trickle-down notion— along with its theoretical justification, marginal productivity theory— needs urgent rethinking.

Interfluidity » Visualizing Keynesian & Monetarist recessions

That theory attempts both to explain inequality— why it occurs— and to justify it— why it would be beneficial for the economy as a whole. New Left Review 87, May-June Save a PDF file; Send an email; Print article; wolfgang streeck HOW WILL CAPITALISM END?

There is a widespread sense today that capitalism is in critical condition, more so than at any time since the end of the Second World War.

[1] A version of this text was delivered as the Anglo-German Foundation Lecture at the British Academy on 23 January John H. DalesPollution, Property, and Prices: An Essay in Policy-Making and Economics, vol.

University of Jonathan HeathcoteOn the distributional effects of reducing capital taxes.

Taxes distributional effects essay

International Economic Review, 45 Steven SextonDistributional Impacts of Energy Taxes. Technical Report. National Bureau of Economic Research ( Type or paste a DOI name into the text box. Click Go. Your browser will take you to a Web page (URL) associated with that DOI name.

Send questions or comments to doi. distributional effects are estimated by use of budget shares and Suit Index while, the welfare losses are estimated using the Compensating Variation (CV) method. The data is obtained.

Economic inequality - Wikipedia