Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9953036 | Journal of Economic Dynamics and Control | 2018 | 87 Pages |
Abstract
This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the “tax-smoothing” results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-model-consistent wedges and inefficiencies in order to understand optimal tax volatility.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Sanjay K. Chugh, Wolfgang Lechthaler, Christian Merkl,