Dissertationen zum Thema „Fiscal policy“

Esta tesis doctoral desarrolla tres temas relacionados con la política fiscal en el campo de la macroeconomía. El primer artículo evalúa las implicaciones cuantitativas de la política fiscal óptima en un modelo con evasión fiscal. El resultado de Chamley-Judd de que el impuesto al capital en el largo plazo es cero no se cumple debido a la presencia conjunta de las evasiones fiscales del impuesto del consumo y trabajo, no incluso si expandimos el modelo introduciendo la evasión del impuesto del capital en economía cerrada. En contraste a Coleman (2000), encontramos que subsidiar el trabajo no es óptimo. En la parte cuantitativa, demostramos que el planificador Ramsey recorta los impuestos del trabajo, capital y consumo; que el impuesto sobre el consumo es considerablemente inferior al impuesto del trabajo; y que menores impuestos al trabajo y consumo reducen sus respectivos niveles de evasión fiscal. Además, las ganancias de bienestar asociadas con este experimento de política son substanciales. En el segundo artículo introducimos la evasión del impuesto al consumo a previos modelos macroeconómicos sobre economía sumergida. El modelo presentado en este artículo es el primero que trata conjuntamente las evasiones del impuesto al trabajo y al consumo. Introduciendo un shock TFP que afecta de la misma forma a los sectores declarado y no declarado, somos capaces de producir una evolución contracíclica de la evasión fiscal y mejoramos la bondad del modelo con respecto a los datos. También, exploramos las consecuencias de nuestro modelo para el sistema impositivo; concretamente, demostramos que puede ser inviable trasladar la carga fiscal de la imposición directa a la indirecta. Las curvas de Laffer son más planas que en el modelo sin evasión fiscal. Los límites impuestos por la evasión son más estrictos para el impuesto al consumo, para el cual la pendiente negativa de la curva de Laffer empieza aproximadamente en un tipo del 10%. Finalmente, el último artículo pretende estudiar cuáles habrían sido los efectos totales y heterogéneos de implementar los llamados Eurobonos en la crisis Europea de la deuda soberana (2009-12). Concretamente, nos centramos en la propuesta de Delpla y von Weizsäcker (2010). La Euro área es dividida en cuatro grupos de acuerdo a sus niveles de deuda pública y sus respectivos retornos de los bonos durante la crisis de la deuda soberana, y para cada grupo se desarrolla un modelo de economía pequeña y abierta sin (modelo de referencia) y con Eurobonos. Además, consideramos tres escenarios para los retornos de los Eurobonos: bajo, medio y alto. Los GIIPS (grupos I y II) son capaces de reducir el efecto desplazamiento sobre la inversión productiva, los impuestos y la deuda así como incrementar el PIB y el bienestar en todos los escenarios. El resto de países (grupos III y IV) pierden en términos de PIB, bienestar y deuda para los retornos medio y alto. En los bajos, todos los grupos están mejor. Por lo tanto, el mensaje clave es que los Eurobonos podrían ser una buena política para abordar periodos de primas de riesgo crecientes, pero su grado de éxito depende del nivel de compromiso.
This doctoral thesis develops three topics on fiscal policy in the field of macroeconomics. The first paper assesses the quantitative implications of optimal fiscal policy in a model with tax evasion. The Chamley-Judd result of a zero capital tax in the long run does not hold due to the presence of both labor income and consumption tax evasions, not even if we expand the model by introducing capital tax evasion in closed economy. In contrast to Coleman (2000), we find that subsidizing labor is not optimal. In the quantitative part, we show that the Ramsey planner cuts consumption, labor, and capital taxes; that the optimal tax rate on consumption is considerably lower than the optimal tax rate on labor income; and that lower taxes on labor and consumption reduce their respective levels of tax evasion. In addition, the welfare gains associated with this policy experiment are substantial. The second paper extends previous macroeconomic frameworks on shadow economy with consumption tax evasion. The model presented here is the first one to jointly tackle both labor income and consumption tax evasions. By introducing a TFP shock that affects equally both the declared and undeclared sectors, we are able to produce a countercyclical evolution of tax evasion and improve the fit of the model to the data. We also explore the consequences for taxation of our framework; specifically, we show that it may be unfeasible to implement tax shifts implying significant reductions of income tax in favor of higher excises on consumption. Laffer curves are flatter than in the model without tax evasion. The limits imposed by tax evasion are stricter for consumption tax, for which the slippery slope of the Laffer curve starts roughly at a mere rate of 10%. Finally, the last paper aims to study what would have been the overall and heterogeneous effects of implementing the so-called Eurobonds in the European sovereign debt crisis (2009-12). Specifically, we focus on the proposal by Delpla and von Weizsäcker (2010). The Euro area is divided in four groups according to their initial government debts and their respective bond yields during the sovereign debt crisis, and a small open economy model is set up for each one without (baseline model) and with Eurobonds. In addition, we consider three scenarios for Eurobond yields: low, medium, and high. GIIPS (groups I and II) are able to reduce the crowding-out effect on productive investment, taxes, and debt as well as increase GDP and welfare in all scenarios. The rest of countries (groups III and IV) lose in terms of GDP, welfare, and debt in the medium and high yields. In the low, all groups are better off. Therefore, the key message is that Eurobonds could be a good policy to address times of soaring sovereign spreads, but their degree of success depends on the level of commitment.

Esta tesis contribuye a tres cuestiones importantes relativas a la política fiscal y sus efectos a corto plazo sobre la economía real. El primer capítulo investiga cómo la riqueza de la vivienda y las restricciones colaterales contribuyen en forma conjunta a la transmisión no lineal de los shocks de política fiscal. Un modelo de equilibrio general dinámico y estocástico (DSGE) que asume inversión en vivienda y restricciones colaterales que ocasionalmente son válidas, revela un patrón no lineal de las respuestas a los shocks fiscales: los shocks positivos de consumo del gobierno son más expansivos en momentos que la riqueza inmobiliaria es relativamente alta y las restricciones colaterales son flojas, mientras que las reducciones de impuestos son más expansivas en momentos que la riqueza inmobiliaria es baja y las restricciones colaterales son válidas. La evidencia empírica, utilizando un modelo VAR no lineal, confirma las predicciones teóricas. En el segundo capítulo se comparan los efectos de los ajustes fiscales en los diferentes tipos de gastos del gobierno al producto nacional, el desempleo y el déficit en los EE.UU., Canadá, Japón y el Reino Unido. Los shocks del consumo público, la inversión pública, el empleo y los salarios públicos se identifican en un VAR estructural, utilizando restricciones de signo derivadas de un modelo DSGE que asume (i) fricciones en el mercado laboral del sector privado y público, (ii) participación laboral endógena y (iii) desempleados heterogéneos. Recortes de empleo del gobierno inducen a pérdidas más altas del producto nacional, a reducciones del déficit más pequeñas y a mayor desempleo en los EE.UU. y el Reino Unido. Por otra parte, los recortes salariales generan las menores pérdidas en el producto nacional y el desempleo, y las más altas ganancias en déficit que otros shocks. La última parte estudia los efectos de la política fiscal desagregada sobre la balanza comercial y el tipo de cambio real. Estimaciones de un VAR estructural revelan patrones distintos para todos los shocks. Los shocks positivos de consumo público e inversión pública inducen una caída del consumo privado, una depreciación real y una mejora de la balanza comercial de los EE.UU. Los shocks positivos de empleo público causan un aumento en el consumo privado, una depreciación real y una mejora de las exportaciones netas de los EE.UU. Por último, los shocks de los salarios públicos inducen una disminución del consumo privado, una apreciación real y un deterioro de la balanza comercial. Un modelo DSGE que asume fricciones en el mercado laboral y mercados financieros internacionales completos, puede replicar de forma satisfactoria las respuestas empíricas a los shocks de empleo y salario público. Sin embargo, una discrepancia surge con respecto a los shocks de consumo público e inversiones públicas: una caída del consumo privado, como respuesta a esos shocks, se acompaña de una depreciación real en la parte empírica, mientras que se acompaña de una apreciación real en teoría.
This thesis contributes to three important issues relating to fiscal policy and its short-run effects on the real economy. The first chapter investigates how housing wealth dynamics and collateral constraints jointly matter for the non-linear transmission of fiscal policy shocks. A dynamic stochastic general equilibrium (DSGE) model with housing investment and occasionally binding collateral constraints reveals a non-linear pattern of responses to fiscal shocks: positive government consumption shocks are more expansionary during times that housing wealth is relatively high and the collateral constraint is slack, while tax cuts are more expansionary during times that housing wealth is low and the collateral constraint binds. In the second chapter, we compare output, unemployment and deficit effects of fiscal adjustments in different types of government outlays in the US, Canada, Japan, and the UK. Shocks to government consumption, investment, employment and wages are identified in a structural VAR, using sign restrictions from a sticky price DSGE model with matching frictions in the private and public sector, endogenous labor participation and heterogeneous unemployed jobseekers. Government employment cuts induce the highest output losses, the smallest deficit reductions and significant unemployment increases in the US and the UK. On the other hand, wage cuts generate the lowest output and unemployment losses, and typically the highest deficit gains. The last part studies the effects of disaggregated fiscal policy on the trade balance and the real exchange rate. Structural VAR estimations reveal distinct patterns for all shocks. Government (non-wage) consumption and investment shocks induce a fall in private consumption, a real depreciation and an improvement of the US trade balance. Public employment shocks lead to an increase in private consumption, a real depreciation and an improvement of the US net exports. Finally, public wage shocks induce a decline in private consumption, a real appreciation and a deterioration of the trade balance. A two-country DSGE model with frictions in the labor market and complete international financial markets can replicate satisfactorily the empirical responses to government employment and wage shocks. However, a correlation puzzle emerges for public consumption and investment shocks: a fall in private consumption as a response to those shocks is accompanied by a real depreciation in the data, while it is accompanied by a real appreciation in theory.

High levels of either public debt or wealth inequality are detrimental to social and economic stability. At a time when reducing public debt and decreasing wealth inequality have become important policy priorities, the question arises about whether these two goals stand in con ict. With this in mind, Chapter 1 assesses the effects of public debt on wealth inequality based on an analytically tractable model of heterogeneous agents. Its scope, in particular, is to investigate whether a reduction of public debt or of budget deficits in general might amplify or not the levels of wealth inequality. In answering this question, we explore a novel channel where, for example, a reduction in budget deficits amplifies wealth inequality due to the change in factor prices, and in particular that of interest rates. Therefore, and besides that our research is the first to explore this type of question, our main contribution is that we show how a change in public debt can affect wealth inequality in an implicit way through the change in factor incomes - that is, the general equilibrium effects. In Chapter 2, on the other hand, we study the design of policies within an endogenous growth model of incomplete markets and partial commitment. Markets are incomplete in two dimensions, the government cannot insure itself from the presence of aggregate risk, and the accumulation of human capital is subject to idiosyncratic risk. Our primary contribution highlights the importance of human capital to effectively manage the economy along the cycle. More specifically, we make a novel argument: taking short run risks are effective responses to a shock that might depress the economy. An investment in human capital which is subject to idiosyncratic risk, serves that purpose. Its returns however, must be protected over-time through an effective provision of liquidity and manipulation of taxes. In our case this policy requires to subsidise physical capital and tax human capital, while the government must own assets. Finally, In Chapter 3 we estimate the fiscal multipliers for Greece. In particular, using the SVAR approach of Blanchard and Perotti we estimate the dynamic effects of government spending and tax revenues on output. The results over the available sample indicate some strong Keynesian effects. That is government spending multipliers are large while the tax multipliers are relatively small. However the conclusions are confined to the peculiarities of the available sample and are not easily exportable to alternative periods or allow any generalizations.

Orientador : Prof. Dr. Armando Vaz Sampaio
Tese (doutorado) - Universidade Federal do Paraná, Setor de Ciencias Sociais Aplicadas, Programa de Pós-Graduação em Desenvolvimento Ecônomico. Defesa : 02/06/2014
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Resumo: Há uma sensação generalizada na sociedade brasileira sobre a vulnerabilidade fiscal da economia do Brasil. Em vista disso, o objetivo deste trabalho é contribuir para a discussão sobre o papel da política fical como ferramenta de estímulo econômico. Para tanto, analisou-se algumas propostas de política fiscal para a economia brasileira, tanto do lado do gasto público, quanto do lado da desoneração tributária. Para tanto, foi desenvolvido um modelo DSGE Novo-keynesiano para uma economia pequena e fechada com seis choques fiscais: gasto corrente do governo; investimento público; transferência de renda às famílias; desoneração do imposto sobre o consumo; desoneração do imposto sobre a renda do trabalho; e desoneração do imposto sobre a renda do capital. Os parâmetros fiscais foram estimados usando a metodologia Bayesiana, enquanto os outros parâmetros foram calibrados. As políticas de desoneração tributária apresentaram melhores resultados do que as políticas de gasto público. Principalmente, a desoneração do tributo sobre a renda do trabalho. Entre as políticas de gasto, o investimento público foi o único choque que apresentou resultado positivo em relação ao PIB. Resumidamente, o resultado obtido é que políticas voltadas para o aumento da oferta agregada possuíram um resultado mais expressivo e sem pressionar a taxa de inflação.
Abstract: There is a widespread feeling in Brazilian society about the fiscal vulnerability of Brazil's economy. In view of this, the objective this work is to contribute to the discussion about the role of fiscal policy as economic stimulus tool. We discuss some proposals of fical policy for the Brazilian economy, both on the side of public spending and on the side of tax reduction. Thus, a New-Keynesian DSGE model for a small closed economy with six fiscal shocks (current government spending, public investment, income transfers to households, tax reduction on consumption, tax reduction on labor income and tax reduction on capital income) was developed. The fiscal parameters were estimated using the Bayesian methodology, while the other parameters were calibrated. The policies of tax reduction showed better results than the policies of public spending. Mostly, the tax reduction on labor income. Among policies spending, public investment was the only shock that showed positive results in relation to GDP. Briey, the result is that policies aimed at increasing aggregate supply had a more significant result, without to press the ination rate.

This thesis consists of three chapters. The first chapter makes use of a New-Keynesian framework to analyze the effects of introducing the public sector in a small open economy, for which a different degree of home-bias for the private and the public sector will be assumed. Once it has been proven that this introduction does not fundamentally vary the original results of the Galí-Monacellli (2005) model, a sensitivity analysis of the effects of such introduction will be made in a setting with different exchange-rate regimes and different degrees of openness. The second chapter develops a DSGE model which features incomplete asset markets, domestic debt denominated either in domestic or foreign currency, a risk premium on such debt and simple feedback rules. We find that in this setting a positive government spending shock leads to expansionary effects on output when exchange rates are allowed to adjust. This effect is reinforced by the real depreciation caused by such policy especially in the case in which debt is denominated in foreign currency. This is not the case under fixed exchange rates, then also under a peg effects are, as expected, quite similar under both currency denominations of debt. The third chapter was written together with Stefan Niemann and Paul Pichler. In it fiscal policy is introduced into a sovereign debt model with endogenous default costs to examine the implications for the determination of the output costs of default. We find that the quantitative properties of the output costs of default, and their dependence on primitives such as the elasticity of labor supply, are distinctly different depending on the margin of fiscal adjustment. The consideration of fiscal policy thus has potentially important implications for the quantitative properties of models of sovereign debt and default.

Doutoramento em Economia
Throughout this work we empirically analyse three important dimensions of fiscal policy -cyclicality, fiscal forecasts and consolidation episodes. While central government expenditure is, on average, weakly countercyclical in the OECD countries and procyclical in Latin American countries, we find evidence of revenue procyclicality in both groups. Higher levels of income inequality lead to less procyclical policies on the revenue side but are associated with stronger expenditure procyclicality, and better institutions seem unable to mitigate this effect. We also study the track record of fiscal forecasts reported by the EU-15 countries in the context of the Excessive Deficit Procedure. For the budget balance, gross fixed capital formation (GFCF) and interest payments, we study the statistical properties of forecast errors and their politico-institutional determinants. While errors in interest and GFCF expenditure present few systematic patterns, budget balance errors are responsive to fiscal institutions and to opportunistic motivations, especially from 1999 onwards: upcoming elections induce over-optimism, whereas commitment or mixed forms of fiscal governance and numerical expenditure rules (but not deficit and debt rules) are associated with greater prudence. Finally, for the EU-27 countries between 1969 and 2006, we assess those factors that help in explaining successful fiscal consolidations. Gradual episodes (3-4 years) are more likely to be successful than cold-shower adjustments (during a single year). The probability of success also increases in the face of cuts in central government current transfers to lower tiers of government. Finally, while successful cold-shower consolidations are characterised, in the years they occur, by a very limited contribution from politically-sensitive expenditure items, such as government wages and social transfers, these items account for nearly half of the primary expenditure adjustment effort during successful gradual fiscal contractions.
Neste trabalho procedemos à análise empírica de três dimensões da política orçamental -ciclicidade, previsões orçamentais e episódios de consolidação. Enquanto a despesa da Administração Central é, em média, ligeiramente contra-cíclica nos países da OCDE e pro-cíclica na América Latina, encontra-se evidência de prociclicidade das políticas do lado da receita em ambos os grupos de países. A elevada desigualdade de rendimentos conduz a políticas menos pro-cíclicas do lado da receita, mas está associada a uma maior prociclicidade da despesa, sendo que este efeito não parece ser mitigado por melhores instituições. Analisamos também o desempenho das previsões orçamentais reportadas pelos países da UE-15 no contexto do Procedimento dos Défices Excessivos. Para o saldo orçamental, formação bruta de capital fixo (FBCF) e juros pagos, estudamos as propriedades estatísticas dos erros de previsão e os seus determinantes político-institucionais. Enquanto os erros para a despesa com juros e FBCF apresentam poucos padrões sistemáticos, os erros de previsão do saldo orçamental dependem das instituições e de motivações oportunistas, especialmente a partir de 1999: a proximidade de eleições induz sobre-optimismo, enquanto que processos de decisão orçamental baseados em formas ditas de compromisso ou mistas e regras numéricas de despesa (mas não as de défice e dívida) estão associados a uma maior prudência. Finalmente, para os países da UE-27 entre 1969 e 2006, avaliamos os factores que ajudam a explicar o sucesso das consolidações orçamentais. Os episódios graduais (3-4 anos) têm maior probabilidade de sucesso do que os episódios do tipo "cold-shower" (que duram apenas 1 ano). A probabilidade de sucesso também aumenta na presença de reduções nas transferências correntes da Administração Central para outros sub-sectores. Enquanto as consolidações "cold-shower" bem sucedidas se caracterizam, no ano em que ocorrem, por um contributo muito limitado de rubricas de despesa politicamente sensíveis, como os salários da Administração Pública e as transferências sociais, estas rubricas contribuem com cerca de metade do esforço do ajustamento da despesa primária durante as consolidações graduais bem sucedidas.

En aquesta tesi, treballo en tres assajos independents sobre política fiscal. Tot i que la motivació està relacionada amb els reptes brasilers, els resultats serveixen de referència a altres economies en desenvolupament. En el primer capítol, discuteixo les respostes de les polítiques en un context de recessió profunda, avaluant diferents normes fiscals. En el segon capítol, estudio la política fiscal òptima quan un país experimenta un augment brusc dels ingressos fiscals a causa de la pèrdua de recursos naturals no renovables. El capítol 3 explora l’impacte de la despesa pública en el benestar dels ciutadans en diferents àmbits d’actuació del govern. Junts, aquests capítols aporten una contribució a un ampli espectre de discussions sobre política fiscal. A l’hora d’avaluar diferents normes fiscals i les seves implicacions per a les decisions polítiques, exploro la rellevància d’obrir un espai fiscal a un govern que apliqui una política anticíclica, fins i tot trobant proves que aquesta política no és desitjable com a norma general. A més, en estudiar polítiques òptimes a l’hora d’enfrontar-nos a un risc inesperat de recursos naturals, mostro la importància d’un comportament responsable de l’estalvi del govern per desafiar la incertesa en la gestió de la riquesa intergeneracional. Finalment, estudiar l’impacte de la despesa pública en el benestar de les persones posa de manifest que potser els governs no utilitzen de manera eficient els pagaments d’impostos dels ciutadans.
En esta tesis, trabajo en tres ensayos independientes sobre política fiscal. Si bien la motivación se relaciona con los desafíos brasileños, los resultados sirven de referencia a otras economías en desarrollo. En el primer capítulo, analizo las respuestas de política en un contexto de recesión profunda, evaluando distintas reglas fiscales. En el segundo capítulo, estudio la política fiscal óptima cuando un país experimenta un aumento abrupto de los ingresos fiscales debido a una ganancia inesperada de recursos naturales no renovables. El Capítulo 3 explora el impacto del gasto público en el bienestar de los ciudadanos en distintas áreas de acción del gobierno. Juntos, estos capítulos aportan una contribución a un amplio espectro de debates sobre política fiscal. Al evaluar las distintas reglas fiscales y sus implicaciones para las decisiones de política, exploro la relevancia de abrir el espacio fiscal para que un gobierno implemente una política contracíclica, incluso encontrando evidencia de que esta política no es deseable como regla general. Además, al estudiar las políticas óptimas cuando se trata de una ganancia inesperada de recursos naturales, muestro la importancia del comportamiento de ahorro gubernamental responsable para desafiar la incertidumbre en la gestión de la riqueza intergeneracional. Finalmente, al estudiar el impacto del gasto público en el bienestar de las personas, se destaca que tal vez los gobiernos no estén utilizando de manera eficiente los pagos de impuestos de los ciudadanos.
In this thesis, I work on three independent essays concerning fiscal policy. Even though the motivation relates to the Brazilian challenges, the results serve as references to other developing economies. In the first chapter, I discuss policy responses in a deep recession context, assessing distinct fiscal rules. In the second chapter, I study optimal fiscal policy when a country experiences an abrupt increase in fiscal revenues due to a nonrenewable natural resource windfall. Chapter 3 explores the impact of public expenditures on citizens' well-being in distinct government action areas. Together, these chapters bring a contribution to an ample spectrum of fiscal policy discussions. In assessing distinct fiscal rules and their implications for policy decisions, I explore the relevance to open fiscal space to a government implement a countercyclical policy, even finding evidence that this policy is not desirable as a general rule. In addition, by studying optimal policies when dealing with a natural resource windfall, I show the importance of responsible government savings behavior to challenge uncertainty in intergenerational wealth management. Finally, studying the impact of public expenditures on people's well-being highlights that maybe governments are failing to use in an efficient way citizens' tax payments.

This thesis, structured around three empirical studies, examines how culture affects policy and economic outcomes in a sample of 62 developed and developing countries spanning the period 1980-2015. More specifically, the studies investigate different cultural traits and their impacts on various outcomes such as fiscal policy choice, fiscal response to cyclical fluctuations and economic volatility. In so doing, this thesis enriches the emerging literature on the economics of culture and the political economy literature to examine: (i) how cultural differences can explain variation in different aspects of fiscal policy across countries, (ii) how culture and fiscal policy jointly determine economic volatility and (iii) the stabilising role of fiscal policy. The first two research areas have remained largely unexplored in the literature whilst the third is still under intensive debate given a lack of consensus among researchers. The first study focuses on the role of culture in determining the size of government. To that purpose, three theoretical hypotheses on the relationship between “thrift” (the proxy of culture) and government consumption are tested using panel data. Data for thrift and other culture variables used in this thesis are from the World Values Survey. Thrift represents the wise management of money and resources and it is also a summary concept for all psychological factors that affect saving. The main finding of this study is that government consumption is higher in thriftier countries, which is put down to thrifty individuals preferring to substitute their own consumption with government consumption, thus resulting in increased private savings and larger governments. The positive effect of thrift on government consumption, however, weakens in more corrupt societies. The second study extends the aforementioned investigation in considering culture as a driver of fiscal policy. Of particular interest is the extent to which fiscal policy is used countercyclically in order to stabilise the business cycles, with the emphasis on the downside of the cycles. Therefore, this study concentrates on the discretionary fiscal expenditure rather than the total government size. The relevant culture proxy captures individuals’ attitude towards economic stability, denoted in this thesis as “stability preference”. Estimations using both panel and cross-sectional models report that a stronger cultural preference for stability effectively results in governments increasing expenditure to counter negative cyclical shocks. This in turn makes fiscal policy more countercyclical. The third study more generally examines the relationship between cultural and economic volatility. In particular, the chapter tests the proposition that societies with a higher level of “trust” tend to trade and invest more, thus leading to more diversified economic structures that are less vulnerable to idiosyncratic shocks. This high trust – low volatility hypothesis is tested using a regression framework that has volatility as a dependent variable. Independent variables are trust and other determinants of volatility such as macroeconomic policy, term of trade and geographical variables. Thus, while assessing the impact of trust on output volatility, this study also revisits the stabilising role of fiscal policy. Empirical evidence shows that high trust levels have volatility-reducing effects. Moreover, although fiscal policy does respond to business cycles, there is neither a significant stabilising nor destabilising effect of fiscal policy. The overall findings from these three inter-related studies contribute to the literature on the economics of culture and, more generally to the political economy literature. Empirical results suggest that culture is a fundamental driver of economic development. Different aspects of culture shape different aspects of policy outcomes as well as aggregate macroeconomic outcomes. This thesis also provides policy implications regarding the size and scope of government, types of fiscal response during economic downturns and the effectiveness of fiscal policy in stabilising the economy.
Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
Dept Account,Finance & Econ
Griffith Business School
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The subject of this dissertation is fiscal policy in the United States. In recent years the limitations of monetary policy have become more evident, generating greater interest in the use of fiscal policy as a stabilization tool. Despite considerable advances in the fiscal policy literature, many important questions about the effects and implementation of such policy remain unresolved. This motivates the present work, which explores both topics in the chapters that follow. I begin in the second chapter by estimating Federal Reserve responses to changes in taxes and spending. Monetary responses are a critical determinant of fiscal policy effectiveness since central banks have the ability to offset many of the economic changes resulting from fiscal shocks. Using techniques commonly employed in the fiscal multiplier literature, my results indicate a willingness by monetary policymakers to alter policy directly in response to fiscal shocks in a way that either reinforces or counteracts the resulting effects. In the third and fourth chapters I shift my focus to the conduct of fiscal policy. Specifically, I use Bayesian methods to estimate the response of federal discretionary policy to different macroeconomic variables. I allow for uncertainty about various characteristics of the underlying model which enables me to determine, for example, which variables matter to policymakers; whether policy conduct has changed over time; and whether policy responses are state dependent. My results indicate, among other things, that policy responds countercyclically to changes in the labor market, but only during periods of weak economic activity.

Thesis advisor: Peter Ireland
Thesis advisor: Fabio Ghironi
In this dissertation I study the impacts of fiscal policies in different monetary settings. In the first chapter, I empirically analyze the impact of fiscal policies on pairwise co-movements of business cycles in the European Monetary Union between the years of 1999 and 2016. In the second chapter, I develop a theoretical model which let me examine the impact of future fiscal consolidation around the zero lower bound interest rate. I explore welfare implications of the timing of future fiscal consolidation. In the first chapter, I empirically examine the impact of national fiscal policies on the bilateral synchronization of business cycles among the euro zone countries and discuss how this impact changes over time between 1999 and 2016. I find that divergences in fiscal balances significantly decrease the synchronization among EZ countries on average. However, this relation is not linear in time. In fact, in the last period when the fiscal austerity measures are adopted, bilateral BCS increases with an increase in differences in fiscal balance. I also discover that the impact of an expansionary fiscal policy (decreasing the surplus or increasing the deficit) on the BCS is greater if the country is running a surplus rather than a deficit. On the other hand, I observe that between 2013 and 2016 if a country with budget deficit performs an expansionary fiscal policy, this increases the BCS which implies that the expansionary fiscal policies in that period are likely countercyclical in nature to neutralize the impacts of asymmetric shocks in the EZ area. In the second chapter, I analyze the effects of different timing of fiscal consolidations under different fiscal policy rules in a New Keynesian framework with endogenously binding zero lower bound. I find that the anticipated future government spending cuts have amplifying effects on the current fiscal stimulus only if the cuts are enacted in a timely manner and government spending does not respond endogenously to the economy. Spending reversals in the very short-run are very costly, while consolidation in the medium-run reduces welfare costs. However, the precise optimal timing of consolidation varies with different fiscal policy rules. If the labor income tax rate is used to stabilize the economy in addition to spending adjustment, the economy is stimulated more compared to a lump-sum taxation rule and no fiscal rule cases. When the government spending responds to output and debt endogenously, the fiscal consolidation occurs endogenously. In this case, additional spending cuts depress the economy and the welfare gain of the cuts at the optimal timing is negligible
Thesis (PhD) — Boston College, 2017
Submitted to: Boston College. Graduate School of Arts and Sciences
Discipline: Economics

The interest in the use of fiscal policy as an effective economic policy tool has been revived recently, since the global recession of 2008 hit the world. In spite of a large empirical literature, there remains substantial uncertainty about the size and even the direction of the effects of discretionary fiscal policy. This thesis seeks to investigate the macroeconomic effects of discretionary fiscal policy in the short term, highlighting several methodologies for identifying discretionary fiscal policy. In Chapters 2 and 3, we suggest a new instrument based on the narrative approach for identifying exogenous government spending shocks: natural disaster damages and the subsequent government emergency spending. While applying our methodology to the Korean and the U.S data, we find that our instrument is not only powerful but also superior to military build-ups used by most of the literature. The relief expenditure in the wake of natural disaster has several advantages such as the similarity in scope to general government activity and the easy applicability beyond the U.S. compared to military build-ups. In the analysis of Korean fiscal policy, using our narrative method and the Structural Vector Autoregression (SVAR) model, we find that government spending shocks increase GDP, consumption, and real wage, which is in line with the New Keynesian model. We also find that the timing is crucial in identifying government spending shocks due to the anticipation effects of fiscal policy. Furthermore, while analyzing the U.S. fiscal policy both at the state as well as national level, we estimate two kinds of non-defense spending multipliers: federal (1.4~1.7) and state (1.5~2.5), which exceed the defense spending multiplier obtained in the literature using military building-ups. In Chapter 4, in regard to the study of effects of fiscal adjustment, we develop the approach based on changes in cyclically adjusted primary balance (CAPB) by including fluctuations of asset price in the CAPB measure and allowing for individual country heterogeneity in the definition of fiscal adjustment. Using our new CAPB in 20 OECD countries, we find that fiscal adjustments have contractionary effects on economic activity in the short term, which is consistent with the result based on the narrative approach. Nevertheless, our results suggest that fiscal adjustments that rely predominantly on spending cuts are less contractionary than those involving tax increases.

COORDENAÇÃO DE APERFEIÇOAMENTO DO PESSOAL DE ENSINO SUPERIOR
O presente trabalho tem objetivo de caracterizar as políticas fiscal e monetária ótimas e avaliar o comportamento do ganho de bem estar fruto do uso destas políticas. Para isto, utilizamos um modelo com rigidez de preços e concorrência monopolística em que a taxa de juros nominal e gasto público tem efeitos reais na economia, seguindo a literatura Novo- Keynesiana. Observamos que existe ganho no uso conjunto das políticas fiscal e monetária vis-à-vis o caso de independência destas políticas. Quanto maior a potência da política fiscal, maior a substituição do instrumento monetário pelo instrumento fiscal na gestão das políticas ótimas. Finalmente, quanto menor a persistência e/ou maior a volatilidade relativa da política fiscal no caso de independência, maior o ganho de bem estar em adotar as políticas ótimas.
The purpose of this work is to identify the optimal monetary and fiscal policy and to evaluate the welfare gains resulting from the cooperation of such policies. Based on a New-Keynesian approach, we investigate a model with price rigidity and monopolistic competition in which the nominal interest rate and the public spending have real effects on the economy. We found gains in the use of both fiscal and monetary instruments, compared to a framework of independence. As the power of the fiscal policy increases, there are welfare gains in substituting interest rate setting by public spending. There are also increasing welfare gains in cooperation when the fiscal policy is less persistent and/or more volatile in relation to other shocks.

Government spending has several components. The government buys intermediate goods and services from the private sector, it invests in infrastructure, it hires workers and pays them a wage and it also makes transfer and interest payments. While most of the theoretical papers studying the effects of government spending focus on purchases of intermediate goods and services, the main objective of this thesis is to examine two other types of expenditure. The first part studies the effects of public sector employment and wages through the labour market and their role over the business cycles in a model with search and matching frictions. The first conclusion is that different components of spending can potentially have distinct macroeconomic effects. The second conclusion is that government wages are an important element to achieve efficiency in the labour market. High wages induce too many unemployed to queue for public sector jobs and raise private sector wages, which lowers job creation in the private sector and raises unemployment. Throughout the business cycle it is optimal to have procyclical public sector wages. The second part is devoted to the study of the role of public sector capital and its interaction with the determination of labour and profit taxation. Over the past 30 years in developed countries we have observed a decline in the corporate tax rate and public investment offset by an increase in the labour income tax and government consumption. I study these trends in an optimal dynamic taxation model where the government also chooses how to allocate spending between government consumption and investment in public capital. I find that the government's decision of how to allocate spending is not independent of the decision of how to raise taxes. I then discuss several hypotheses that are consistent with the observed trends. The last part of the thesis gathers two empirical essays on labour market flows and on the determinants of sovereign debt ratings.

This thesis examines the properties of optimal fiscal policy in the long-run and over the business cycle in general equilibrium models with agents that differ with respect to their skills and with production processes embodying capital-skill complementarity. To this end, the thesis is composed of four chapters which asses different aspects of optimal fiscal policy under various specifications incorporating labour skill and production differences as well as different assumptions regarding the policy instruments available to the government. The first two chapters focus on the long-run, while the last two concentrate on business cycle dynamics. The first and third chapters examine setups that allow households to differ with respect to their income and whose position in the labour market with respect to their skill is exogenously determined. In contrast, the second and fourth chapters consider setups where the labour force belongs to a single household, which guarantees consumption irrespective of skill level, and unskilled labour can endogenously acquire skills to become skilled. Chapter 1 presents a detailed numerical analysis of the effects of optimal fiscal policy in an economy where the households are heterogeneous with respect to their labour and capital income. The production structure is characterised by a CES function allowing for capital, skilled and unskilled labour. In this setup, optimal fiscal policy in the long-run implies a non-zero and positive tax rate on capital income together with highly progressive labour income taxes. Moreover, the level of the optimal tax rate on capital income and the progressivity of labour income taxes are sensitive to the weight placed on the skilled agents in the objective function of the government. Chapter 2 analyses optimal factor income taxation when there are different returns to skilled and unskilled workers, who belong to the same household, and to capital in structures and equipment, under capital-skill complementarity and endogenous skill acquisition. We find that when all factor inputs are taxed at separate rates, both capital income taxes are zero in the long-run, there is a subsidy to education and labour income taxes are progressive. The progressivity in labour income taxes is reduced if investment in education cannot be subsidised, whereas if the government can only impose a single labour income tax, the tax on income from capital equipment will be non-zero. These results remain valid even if the government is restricted to satisfy a given level of debt to output ratio, although with welfare losses. Finally, we show that the transitional dynamics of the fiscal instruments from the exogenous to optimal taxation are not affected by the restrictions to the fiscal policy menu. Chapter 3 examines how income taxes are optimally distributed over the business cycle in a model with high, middle and low income households when the government is restricted to balance its budget in each period. The findings of an empirically relevant model indicate that under optimal fiscal policy the income tax rate of the high income households has the lowest volatility and the income tax rate of the low income households exhibits the lowest counter-cyclicality. If the fiscal policy menu also includes a consumption tax, the progressivity of the income tax rates is even higher and the results regarding the volatilities of the income taxes are overturned. We further find that the progressivity of the income tax rates is optimally increased after an output-enhancing shock. Chapter 4 undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption, as well as total factor and capital equipment productivity. We also examine the properties of optimal taxation under a restriction on the debt to output ratio. Our main finding is that, an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, significantly changes the cyclical properties of optimal labour taxes. This result remains valid even in the presence of a budget rule that restricts the debt to output ratio. We show that the key to understanding this result is that the government finds it optimal to adjust labour income tax rates to alter the average net returns to skilled and unskilled labour hours.

This thesis presents three papers on fiscal policy. The first paper "Macroeconomic impacts of fiscal policy shocks in UK; a DSGE analysis" (joint with Keshab Bhattarai) uses an estimated new-Keynesian dynamic stochastic general equilibrium (DSGE) model to analyse the effects of fiscal policy in the UK. We show that positive shocks in government consumption and investment result in the highest stimulus in the short term, whereas the capital tax cut and the positive public investment shock in the longer horizon. On the government’s expenditure side public investment remains the most stimulating instrument even if we allow for a constant elasticity of substitution index of private and public consumption in utility. We also find that, the nominal and real frictions present in the model tend to influence stronger the level of labour and capital tax multipliers and less public expenditure multipliers. The second paper "Credit constraints, the housing market, and fiscal policy" investigates the effects of fiscal policy in an estimated new-Keynesian open-economy DSGE model with a housing market and indebted households. We show that house prices drop following a negative shock to government transfers, and a positive shock to public spending, public investment and taxes. The results reveal that the financial deregulation increases the sensitivity of fundamentals to fiscal policy. In particular, in the case of a stimulus, the financial deregulation contributes to a weakening of multipliers in the case of government consumption and investment and tends to improve multipliers for public transfers and tax cuts. The third paper "Who is afraid of austerity? The redistributive impact of fiscal policy in a DSGE framework" (joint with Richard McManus and Gulcin Ozkan) explores the distributional consequences of fiscal austerity using a medium scale new-Keynesian DSGE model with a richly specified fiscal sector. We show that agents who are credit constrained are most exposed to austerity in contrast to agents with full access to financial markets. This is particularly true in the case of rises in taxes on labour income and cuts in transfers. In general, tax based consolidations exhibit more conflict than spending based ones. Our results also reveal that the distributive impacts of fiscal consolidations are amplified the longer the austerity persists; the slower the policy reversal and when monetary policy reaches its zero lower bound.

This dissertation presents three chapters about US tax and spending policy. The first chapter investigates the take-up of a tax refund for corporate losses. We find that few firms claim the refund despite that it dominates the alternative option. This finding indicates that many firms fail to optimize perfectly with respect to taxes. The second chapter estimates corporate responses to a tax incentive for investment. We find the largest responses among small firms and firms without an alternative tax shield, suggesting that the tax incentive operates through both the price and cash mechanisms. The third chapter tests for partisan effects on the distribution of federal spending within congressional districts. Even when conditioning on institutional contexts with greater partisan influence, I find little evidence that parties tilt the distribution of federal spending to favor co-partisan and swing voters.
Political Economy and Government

This thesis is of the three article format. All three articles contribute to the literature on optimal fiscal policy with exogeneous government expenditures and distortionary taxation following Lucas and Stokey (1983) and Aiyagari et al. (2002) (AMSS). The first article extends the framework of AMSS by modelling agents ex ante heterogeneous in deterministic labour productivity trends in an infinite-horizon production economy with incomplete markets. The government does not use transfers. When the productivities of different agents grow at different rates, there is a conflict over the timing of tax collection. This is explored in a two-period model. The infinite-horizon model with two agents (‘lowskilled’ and ‘high-skilled’) is used to quantitatively analyse the impact of productivity trends observed in recent decades on the optimal policy. The impact is significant. The model can contribute to explaining the increase in government debt in many advanced economies in recent decades. The optimal policy strongly depends on Pareto weights but welfare of the agents does not. Political economics implications are discussed. The second article analyses the impact of heterogeneous productivity trends on the optimal policy when the social planner can use transfers. There is now conflict over the timing and the level of taxation, and it is explored in a two-period model. The optimal policy is studied in the same environment as in the first article. For most Pareto weights, the change in the tax rate is less pronounced than in the model without transfers, but still greater than the expected change due to shocks. The optimal policy and the welfare of the agents strongly depend on Pareto weights. Policy implications are discussed. The optimal policy in the horizon of decades is significantly affected by even a modest heterogeneity in the growth rates of the agents. Solution methods common to all three articles are discussed. In the third article the closed economy model of AMSS is extended into an open economy setting with two countries. The government of each country finances its exogeneous stochastic expenditures by distortionary labour taxation, and issues one-period bonds. The Ramsey planner chooses policy for both countries, and a no-arbitrage condition on the return of bonds of the two countries restricts her choices. The optimal policy is quantitatively studied in a calibrated model with ex-ante identical countries and equal Pareto weights, and three settings are compared in terms of policy and welfare: autarky (closed economy), partial union (international borrowing allowed), and full union (transfers between governments allowed).

2008-2009
This thesis investigates the macroeconomics e ects of scal policy from a theoretical and empirical perspective. The rst part of the thesis surveys recent theoretical and empirical studies in the related literature. The analysis shows that while consensus has emerged on the positive e ect that an expansionary scal policy has on output and hours worked, no widespread consensus exists on the e ects that such a policy delivers to private consumption, real wages and investment. While in standard RBC models the negative wealth e ect on households' lifetime resource constraint prevails, in more or less articulated new-Keynesian models a crowding-in e ect of consumption and an increase in wages is made possible also under plausible calibrations. While early empirical contributions gave credit to the standard neoclassical predictions, the most recent econometric applications, generally making use of structural VARs, have supported and in many cases have inspired the latest new-Keynesian claims. Next, this work applies graphical modelling theory to identify scal policy shocks in SVAR models of the US economy. Unlike other econometric approaches { which achieve identi cation by relying on potentially contentious a priori assumptions { graphical modelling is a data based tool. Our results are in line with Keynesian theoretical models, being also quantitatively similar to those obtained in the recent SVAR literature a la Blanchard and Perotti (2002), and contrast with neoclassical real business cycle predictions. Stability checks con rm that our ndings are not driven by sample selection. In its nal part, the thesis empirically explores the information content of a large set of scal indicators for US real output growth and in ation. We provide evidence that uctuations in certain scal variables contain valuable information to predict uctuations in output and prices. The distinction between federal and state-local scal indicators yields useful insights and helps de ne a new set of stylized facts for US macroeconomic conditions. First, we nd that variations in state-local indirect taxes as well as state government surplus or de cit help predict output growth. Next, the federal counterparts of these indicators contain valuable information for in ation. Finally, state-local expenditures help predict US in ation. A set of formal and informal stability tests con rm that these relationships are stable. The scal indicators in questions are also among theones that yield the best in-sample and out-of-sample performances.
VIII n.s.

The economic downturn of 2008-2010 has encouraged many economists andpoliticians to reconsider the role of fiscal policy. Whereas there is a broadly acceptedmodel which describes the influence of monetary policy on the economy, there is noconsensus concerning the fiscal policy.This paper aims to study the effectiveness of fiscal policy actions in Sweden over thepast 15 years, starting from the end of the banking crisis of 1992-93 to date. It has aspecific focus on the measures which were introduced in 2007-2010 and employs bothqualitative and quantitative analyses.The qualitative analysis investigates different expansionary fiscal measures, inter alia,the earned income tax credit, the new legislation for crisis management of banks, theguarantee program and the establishment of stability fund.The quantitative analysis is based on a 4-variable Vector Autoregression model whichhelps to identify the influence of general government expenditure, revenue and centralgovernment debt on GDP fluctuations over the past 15 years. The results demonstrate apositive response of GDP to an increase in government expenditure, with the maximumvalue of response achieved after 8 quarters. GDP also grows in response to a positiveshock in the central government debt, which is in line with the macroeconomic theory ofexpansionary fiscal policy. The positive response to an increase of revenue is somewhatcontradictory, and can become a topic for a further in-depth research.The economic downturn of 2008-2010 has encouraged many economists andpoliticians to reconsider the role of fiscal policy. Whereas there is a broadly acceptedmodel which describes the influence of monetary policy on the economy, there is noconsensus concerning the fiscal policy.This paper aims to study the effectiveness of fiscal policy actions in Sweden over thepast 15 years, starting from the end of the banking crisis of 1992-93 to date. It has aspecific focus on the measures which were introduced in 2007-2010 and employs bothqualitative and quantitative analyses.The qualitative analysis investigates different expansionary fiscal measures, inter alia,the earned income tax credit, the new legislation for crisis management of banks, theguarantee program and the establishment of stability fund.The quantitative analysis is based on a 4-variable Vector Autoregression model whichhelps to identify the influence of general government expenditure, revenue and centralgovernment debt on GDP fluctuations over the past 15 years. The results demonstrate apositive response of GDP to an increase in government expenditure, with the maximumvalue of response achieved after 8 quarters. GDP also grows in response to a positiveshock in the central government debt, which is in line with the macroeconomic theory ofexpansionary fiscal policy. The positive response to an increase of revenue is somewhatcontradictory, and can become a topic for a further in-depth research.

Los modelos Neo-Keynesianos se han impuesto en el análisis de las políticas monetaria y fiscal óptimas. Esta literatura no considera la interacción estratégica entre los agentes económicos y las autoridades de la política económica. En esta tesis, se identifican dos problemas interesantes que no pueden abstraerse de este asunto: las implicaciones de política monetaria en una economía con grandes sindicatos; el mix de política monetaria y fiscal óptimas en una unión monetaria. El primer capitulo muestra cómo la política monetaria determina el nivel de producción y ocupación en el largo plazo, cuando los salarios se fijan en el marco de contratos colectivos. El segundo capítulo deriva la política monetaria óptima en este contexto. El tercer capitulo identifica la política monetaria óptima en una unión monetaria, cuando los gobiernos eligen el gasto público bajo discreción.

Esta tesis estudia cuestiones de política monetaria y fiscal en macroeconomías con fricciones financieras.
El Capítulo 1 analiza numéricamente el funcionamiento de reglas de política monetaria en economías con y sin imperfecciones financieras. El capítulo compara una política monetaria endógena con una regla de crecimiento del dinero constante en un escenario de participación limitada. Las imperfecciones surgen por información asimétrica en la producción de capital. El modelo se ajusta bastante bien a los datos de EE.UU. El escenario con imperfecciones financieras es capaz de reflejar algunos hechos estilizados del ciclo económico, como la relación negativa entre producto y prima de riesgo, que no aparecen en el caso estándar sin fricciones. El uso de reglas de tipos de interés en un modelo de participación limitada tiene efectos estabilizadores contrarios a los de los modelos neo-Keynesianos. Concretamente, en un modelo de participación limitada, usar reglas de tipos de interés ayuda a estabilizar producto e inflación frente a un shock tecnológico, mientras que existe un trade-off entre estabilizar producto e inflación si el shock es a la demanda de dinero. Finalmente, los efectos de una regla de Taylor son más fuertes -más estabilizadores o más desestabilizadores- cuando hay fricciones financieras.
El Capítulo 2 utiliza datos de EE.UU. de posguerra para analizar si las fricciones financieras pueden haber contribuido a reducir la variabilidad del producto y la inflación desde los 80. Los datos sobre producto, inflación, tipo de interés y prima de riesgo indican un punto de ruptura en 1981:2, tras el cual estas variables son menos volátiles. El modelo anterior se utiliza aquí para calibrar una regla de tipos de interés para cada submuestra. Sin fricciones financieras, los resultados confirman el reconocido cambio en la política monetaria al presentar reglas bastante diferentes antes y después de 1981:2. Sin embargo, en contraste con la literatura empírica, la calibración no refleja un mayor peso sobre la estabilización de la inflación después de 1981:2. Sorprendentemente, con un nivel positivo de costes de control, la calibración presenta dos reglas mucho menos distintas que aquellas encontradas en ausencia de imperfecciones. Las reglas calibradas sí que asignan un mayor peso a la estabilización de la inflación y menor a la del producto tras 1981:2, a diferencia del caso de costes de control cero. Cuando la regla, costes de control, y shocks cambian entre submuestras, la calibración presenta dos reglas con más peso a la estabilización de la inflación y menos a la del producto después de 1981:2. El grado de fricciones financieras cae un 10% tras 1981:2.
El Capítulo 3 estudia las consecuencias en crecimiento y bienestar de imponer límites de deuda a la restricción presupuestaria del gobierno. El modelo presenta crecimiento endógeno y permite al gasto público tener dos papeles diferentes, bien como factor productivo o bien como servicios en la función de utilidad (en este caso, el capital privado genera crecimiento.) En el largo plazo, sin límites de deuda, mayores impuestos sobre el trabajo reducen el crecimiento, independientemente del papel desempeñado por el gasto público. Con límites de deuda, mayores impuestos sobre el trabajo aumentan el crecimiento si el gasto público es productivo. También se analiza la dinámica de una política fiscal más restrictiva para alcanzar un límite de deuda menor, cuando el gasto público es productivo. Mayores impuestos sobre el trabajo para reducir la deuda llevan a un nuevo estado estacionario con mayor crecimiento y menores impuestos, debido al papel productivo del gasto público. Igualmente, un menor ratio de gasto público-producto reduce el crecimiento y producto. Mayores impuestos sobre el trabajo conllevan menos costes de bienestar que cortes en el gasto público para reducir la deuda.
This dissertation analyzes monetary and fiscal policy issues in macroeconomies with financial frictions.
Chapter 1 analyzes numerically the performance of monetary policy rules in economies with and without financial imperfections. Endogenously driven monetary policy is compared to a constant money growth rule in a limited participation framework. The imperfections arise due to asymmetric information emerging in the production of capital. The model economy fits US data reasonably well. The setup with financial imperfections is able to account for some stylized facts of the business cycle, like the negative correlation between output and risk premium, which are absent in the standard frictionless case. The use of interest rate rules in a limited participation model has the opposite stabilization effects compared with new Keynesian models. More concretely, in a limited participation model, using interest rate rules helps stabilize both output and inflation in the face of technology shocks, whereas there is a trade-off between stabilizing output and inflation if the shock is to money demand. Finally, the effects of a Taylor rule are stronger -either more strongly stabilizing or more strongly destabilizing- when there are financial frictions in the economy.
In Chapter 2, postwar US data are employed to analyze whether financial frictions may have contributed to reduce the variability of output and inflation since the 1980s. Data on output, inflation, interest rate, and risk premium indicate a structural break at 1981:2, after which these variables become less volatile. The model economy of Chapter 1 is used to calibrate an interest rate rule for each subsample. Without financial frictions, the results confirm the widely recognized change in the conduct of monetary policy by reporting substantially different rules before and after 1981:2. However, in contrast with empirical literature, the calibration fails to assign more weight to inflation stabilization after 1981:2. Interestingly, when a positive level of monitoring costs is introduced, the procedure yields two calibrated rules that are much less different than those found in the absence of frictions. Furthermore, the calibrated rules do report a stronger weight to inflation and less to output stabilization after 1981:2, as opposed to the zero monitoring costs case. When the rule, monitoring costs, and shocks are allowed to change across subsamples, the calibration reports two interest rate rules that assign more weight to inflation and less to output stabilization after 1981:2. Also, the degree of financial frictions is 10% less after 1981:2.
Chapter 3 studies the growth and welfare consequences of imposing debt limits on the government budget constraint. The model economy displays endogenous growth and allows public spending to have two different roles, either as productive input or as services in the utility function (in this case private capital drives growth). Introducing debt limits is determinant for the growth effects of different fiscal policies. In the long run, without debt limits, the growth effects of raising taxes on labor income are negative regardless of the role of government spending. Interestingly, with debt limits, higher labor tax rates affect positively growth if government spending is productive. The chapter also analyzes the dynamic effects of imposing a more restrictive fiscal policy in order to attain a debt limit with a lower debt to output ratio, for the case of productive government spending. Raising taxes to lower debt leads to a new balanced growth path with higher growth and lower taxes, because of the productive role of government spending. By the same reason, a fiscal policy consisting of reducing government spending over output has the opposite effects, reducing growth and output. Finally, raising labor income taxes implies a lower welfare cost of reducing debt than does cutting spending.

The thesis is divided into three chapters.

1) I study how monetary policy should be optimally designed when households show financial wealth heterogeneity.
Main results: thanks to its ability to affect interest payments volatility, monetary policy has real effects even in a flexible-price cashless-limit environment; second, in a setup with nominal rigidities, price stability is no longer optimal. The extent of deviation from price stability depends on the initial level of debt dispersion.

2) I assess the role of housing price movements in influencing the optimal design of monetary policy.
Under the optimal simple rule, housing price movements should not be a separate target variable in addition to inflation. Furthermore, the welfare loss arising from targeting housing prices becomes quantitatively more significant the higher the degree of access to the credit market.

3) I analyze the effects of fiscal policy in a currency area.
Results: a public spending shock in one region increases private agents demand for imports and appreciates the terms of trade; second, a countercyclical fiscal rule can restore the Taylor principle, the uniqueness of the equilibrium and reduce macro-volatility.

Aquesta tesi contribueix a la literatura que analitza conjuntament la política fiscal i monetària. Des de l'inici de la crisi econòmica mundial al 2007-2008, moltes economies desenvolupades han experimentat notables fluctuacions econòmiques. La majoria de polítiques estabilitzadores en aquests països han consistit en grans estímuls fiscals que han endegat el debat sobre quines polítiques, particularment política monetària, caldrà implementar per tal de sostenir o ajustar el deute públic generat. El meu treball estudia el disseny de polítiques en un entorn dinàmic d'equilibri general on totes les forces descrites anteriorment hi tenen un paper. En el primer capítol, utilitzo un model New Keynesian per a estudiar la política monetària i fiscal òptima en un entorn on la barrera del tipus d'interès no negatiu condueix l'economia a la trampa de la liquiditat. L'efectivitat de les polítiques en aquest entorn està determinat per si el govern pot emetre deute públic o no. Quan el govern no pot generar deute, es veu obligat a utilitzar l'instrument de la despesa. En canvi, si el govern pot generar deute, és òptim utilitzar instruments recaptadors com els impostos sobre el treball ja que les distorsions d'aquest instrument poden ajustar els problemes generats pel deute quan s'entra en la trampa de la liquiditat. A més a més, demostro que el risc de caure en la trampa de la liquiditat condueix el govern a acumular deute de manera que el risc de arribar a la barrera del tipus d'interès no negatiu. En el segon capítol, estudio com la com la velocitat òptima del ajustament del deute públic, i el conjunt de polítiques necessàries per aconseguir-lo, depenen de l'estructura de pagaments del deute. Sota l'assumpció que el deute pren la forma de bons nominals a un període, per a nivells plausibles de deute, la sostenibilitat fiscal requereix un ràpid ajustament del deute mentre la política monetària s'encarrega d'acomodar les fluctuacions. Pagaments de deute més dissipats cap al futur alteren els incentius del govern per alterar les polítiques presents i per a fer ajustos que modifiquin el preu de l'endeutament en el futur. Tenint en compte un nivell plausible de l'escala temporal de pagaments del deute, fa l'ajustament del deute molt més gradual, cosa que està en línia amb l'evidència empírica sobre la persistència del deute públic. En el cas d'una cartera de bons, amb un període de venciment que d'anys o més, no és òptim que la política monetària s'utilitzi per a acomodar les fluctuacions. En el tercer capítol, faig una extensió de la teoria de risc sobirà d'Uribe (2006) en l'entorn d'una unió monetària amb mercats incomplets. En aquest cas, les polítiques d'impagament no només serveixen per garantir la sostenibilitat fiscal i escapar de possibles inflacions explosives sinó que poden servir com assegurança de les llars contra risc fiscal específic de cada país. Caracteritzo analíticament una solució de les dinàmiques de primer orde del model i comparo l'equilibri amb el cas en que hi ha mercats complets. Per tal que aquest dos escenaris coincideixin, cal que la política de pagaments sigui imperfectament discriminatòria. Un resultat complementari és que, sota el supòsit discriminació imperfecta, canvis en la política monetària afecten l'economia real en els períodes d'ajustament del deute fins i tot en l'absència de rigideses nominals. Finalment, descric el disseny d'una política d'impagament que aconsegueix portar l'economia al escenari de mercat complets.
This thesis contributes to the literature on the joint analysis of monetary and fiscal policy. Since the onset of the global economic downturn in 2007-2008, many advanced economies experienced large economic fluctuations. Stabilizing policy responses in those countries often included large fiscal stimulus packages that in turn triggered discussions of the policy measures---including monetary policy---that would ensure debt sustainability or perform debt adjustment if required. In my work I study policy design in the framework of dynamic general equilibrium models that capture such pressing policy issues. In the first chapter I study optimal monetary and fiscal policy in a New Keynesian model with an occasionally binding zero lower bound that leads to liquidity trap episodes. I analyze the use of government spending and labor income tax as components of the discretionary fiscal stimulus package at the liquidity trap. Reliance on either of these instruments depends on whether the government budget is relaxed or has to be balanced. If the government has to balance its budget period by period, it relies more on the spending instrument. Varying the debt burden across time makes the government rely more on the use of labor taxes because discretionary incentives introduced by debt help to reduce the time-inconsistency problem of the tax rate response at the liquidity trap. Moreover, I show that the risk of falling into the liquidity trap leads to the accumulation of the optimal long run government debt buffer that reduces the frequency of reaching the zero lower bound. In the second chapter I study how the speed of optimal government debt adjustment and the monetary-fiscal policy mix that implements it depend on the maturity structure of debt when policy is chosen discretionary. Under the assumption of debt taking the form of one-period nominal bonds, for plausible levels of debt, fiscal sustainability requires prompt adjustment of debt and monetary policy bears a significant burden of implementing the adjustment. Higher average maturity reduces both the incentive of the government to alter current policy and the incentive to strategically affect future self so as to improve the price of borrowing. Accounting for a plausible average maturity makes the optimal debt adjustment much more gradual, which is in line with the existing empirical evidence on the persistence of government debt. In the case of bond portfolios with the average maturity ranging from several years and higher, it is no longer optimal for monetary policy to accommodate debt adjustment. In the thirds chapter I extend a fiscal theory of the sovereign risk by Uribe (2006) into the setting of a monetary union with incomplete markets. Default policy then not only serves the purpose of securing fiscal sustainability and escaping explosive inflation paths but at the same time can take on the role of insuring households across the union against country-specific fiscal risk. I characterize analytically a solution to the model's first-order dynamics and compare equilibrium consumption allocation against a benchmark of the perfect risk-sharing. For these two to coincide one necessary condition has to be satisfied, namely default policy has to be imperfectly discriminatory. The companion result is that, under imperfectly discriminatory default, changes in the monetary policy rule affect real economic activity during the periods of debt adjustment despite the absence of nominal rigidities. Finally, I discuss design of a simple default rule that attains perfect risk-sharing in equilibrium.

This thesis is composed by four chapters on New Keynesian macroeconomics. Chapter 1 develops a small New Keynesian model augmented with a steady state level of public debt and a share of rule-of-thumb consumers (ROTC henceforth) as in Galí et al. (2004; 2007). This chapter focuses on the consequences for the design of monetary and …scal rules, of the bifurcation on the demand side of the economy generated by the presence of ROTC, in the absence of Ricardian equivalence. When …scal policy follows a balanced budget rule, the share of ROTC determines whether an active and/or a passive monetary policy in the sense of Leeper (1991) guarantees determinacy. When a short run public debt asset is introduced, the amount of ROTC determines whether equilibrium determinacy requires a mix of active (passive) monetary policy and a passive (active) fiscal policy or a mix where both policies are active or passive. Chapter 2 studies the equilibrium determinacy of a New Keynesian model augmented with trend inflation, public debt and distortionary taxation. Both the level of long run inflation as well as the stock of steady state public debt have to be explicitly taken into consideration for the characterisation of the equilibrium dynamics between monetary and fiscal policy. Chapter 3 considers the implications of external habits for optimal monetary policy in an otherwise standard New Keynesian model, when those habits exist at the level of individual goods as in Ravn et al. (2006). External habits generate an additional distortion in the economy, which implies that the flex-price equilibrium will no longer be efficient and that policy faces interesting new trade-offs and potential stabilisation biases. The endogenous mark-up behaviour, which emerges with deep habits, signi…cantly a¤ects the optimal policy response to shocks and the stabilising properties of standard simple rules. Chapter 4 analyses both optimal monetary and …scal policy in a New Keynesian model augmented with deep habits and valuable government spending. We …find that, in line with the general consensus in the macro literature, …scal policy adds very little to optimal monetary policy as a stabilisation device.

PONTIFÍCIA UNIVERSIDADE CATÓLICA DO RIO DE JANEIRO
COORDENAÇÃO DE APERFEIÇOAMENTO DO PESSOAL DE ENSINO SUPERIOR
CONSELHO NACIONAL DE DESENVOLVIMENTO CIENTÍFICO E TECNOLÓGICO
PROGRAMA DE SUPORTE À PÓS-GRADUAÇÃO DE INSTS. DE ENSINO
PROGRAMA DE EXCELENCIA ACADEMICA
Esta tese é composta por 3 capítulos. No primeiro capítulo mostro que quando um banco central não é totalmente apoiado financeiramente pelo tesouro e enfrenta uma restrição de solvência, um aumento no tamanho ou uma mudança na composição de seu balanço pode servir como um mecanismo de compromisso em um cenário de armadilha de liquidez. Em particular, quando a taxa de juros de curto prazo está em zero, operações de mercado aberto do banco central que envolvam compras de títulos de longo prazo podem ajudar a mitigar a deflação e recessão sob um equilíbrio de política discricionária. Usando um modelo simples com produto exógeno, mostramos que uma mudança no balanço do banco central, que aumenta seu tamanho e duração, incentiva o banco central a manter as taxas de juros baixas no futuro, a fim de evitar perdas e satisfazer a restrição de solvência, aproximando-se de sua política ótima de commitment. No segundo capítulo da tese, eu testo a validade do novo mecanismo desenvolvido no capítulo 1, incorporando um banco central financeiramente independente em um modelo DSGE de média escala baseado em Smets e Wouters (2007), e calibrando-o para replicar principais características da expansão do tamanho e composição do balanço do Federal Reserve no período pós-2008. Eu observo que os programas QE 2 e 3 geraram efeitos positivos na dinâmica da inflação, mas impacto modesto no hiato do produto. O terceiro capítulo da tese avalia as consequências em termos de bem-estar de regras fiscais simples em um modelo de um pequeno país exportador de commodities com uma parcela da população sem acesso ao mercado financeiro, onde a política fiscal assume a forma de transferências. Uma constatação principal é que as regras orçamentárias equilibradas para as receitas de commodities geralmente superam as regras fiscais mais sofisticadas, em que as receitas de commodities são salvas em um Fundo de Riqueza Soberana. Como os choques nos preços das commodities são tipicamente altamente persistentes, a renda atual das famílias está próxima de sua renda permanente, tornando as regras orçamentárias equilibradas próximas do ideal.
This thesis is composed of 3 chapters. In the first chapter, It s shown that when a central bank is not fully financially backed by the treasury and faces a solvency constraint, an increase in the size or a change in the composition of its balance sheet (quantitative easing - QE) can serve as a commitment device in a liquidity trap scenario. In particular, when the short-term interest rate is at the zero lower bound, open market operations by the central bank that involve purchases of long-term bonds can help mitigate deflation and recession under a discretionary policy equilibrium. Using a simple endowment-economy model, it s shown that a change in the central bank balance sheet, which increases its size and duration, provides an incentive to the central bank to keep interest rates low in the future to avoid losses and satisfy its solvency constraints, approximating its full commitment policy. In the second chapter, the validity of the novel mechanism developed in chapter 1 is tested by incorporating a financiallyindependent central bank into a medium-scale DSGE model based on Smets and Wouters (2007), and calibrating it to replicate key features of the expansion of size and composition of the Federal Reserve s balance sheet in the post-2008 period. I find that the programs QE 2 and 3 generated positive effects on the dynamics of inflation, but mild effects on the output gap. The third chapter of the thesis evaluates the welfare consequences of simple fiscal rules in a model of a small commodity-exporting country with a share of financially constrained households, where fiscal policy takes the form of transfers. The main finding is that balanced budget rules for commodity revenues often outperform more sophisticated fiscal rules where commodity revenues are saved in a Sovereign Wealth Fund. Because commodity price shocks are typically highly persistent, the households current income is close to their permanent income, so commodity price shocks don t need smoothing, making simple balanced budget rules close to optimal.

This thesis examines, within the overlapping generations framework, aspects of theories of consumption and fiscal policy under particular liquidity constraints and the effects of life-time earnings. The study consists of three parts; the theoretical analysis, the estimation of required parameters using the UK New Earnings Survey data and the calibration and simulation of our developed models. Firstly we introduce liquidity constrained consumers into an aggregate consumption function and then discuss, theoretically, the effect of these consumers in steady-state. Our comparative analysis shows that this effect could be significantly affecting steady-state parameters, i.e. capital stock and interest rates, and hence consumption. We also conclude that Ricardian equivalence fails not only because of a positive probability of death but due to liquidity constraints. It is clear that fiscal policy is even more important in an economy where most of the consumers are liquidity constrained. In our first simulation experiment we examine these consumers in an equilibrium approach by introducing liquidity constraints to our closed economy model. This investigation is done using a control framework which is concerned with uncertainty and time inconsistency. Our results emphasise that the outcome of a policy model which does not take into account liquidity constraints, would be misleading. With respect to the life-cycle of earnings, we use the New Earnings Survey data to estimate the parameters of our age-earnings profiles. Our examination contains age- earnings, in the UK for the last 20 years and the data clearly indicates that the age earnings profile has a parabolic structure as was previously argued. In our second simulation experiment, we introduce the life-cycle of earnings into our closed economy model and find that the life-cycle effect is significant. More intuitively, a life-cycle form of earnings affects the aggregate consumption in different ways compared to the case where earnings are a constant or declining function of age. We conclude that any implemented macroeconomic policy model should consider the life-cycle of earnings.

This PhD thesis gathers three essays on income inequality and fiscal policy. Chapter 2, “Inequality and the Size of Government”, written with Andrew Pickering and Paulo Santos Monteiro, revisits Meltzer and Richard (1981) but with the twist that income inequality is induced by differences in capital income as well as differences in labor productivity. When capital income is difficult to tax, as often observed, then greater capital income inequality leads to reduced demands for tax as the poor cannot effectuate redistribution. Using OECD data, government size and capital income inequality (proxied by the top 1 percent income share) are found to be negatively related in both fixed effects and instrumental variable regressions. Chapter 3, “Inequality and Growth in the Twenty-First Century”, builds on chapter 2 to investigate how economic growth is affected by inequality in an endogenous growth model. The benchmark is Persson and Tabellini (1994), who argue that productivity-induced income inequality leads to lower growth as distortionary taxes increase and harm capital accumulation. However, if income inequality stems from differences in capital, then labor tax rates fall, leading to higher growth. Based on OECD data, the chapter shows that an increase in capital income inequality has a significant positive relationship with subsequent economic growth. Chapter 4, “Demography and the Composition of Taxes”, analyzes the impact of population aging on the composition of taxes in an overlapping generations model. When the median voter is of working age, then population aging increases the demand for expenditure taxes rather than income taxes in order to increase the tax burden on the retired population. Consistent with the theory, international panel data exhibit a robust negative correlation between the extent of taxes on income relative to expenditure, and the fraction of the retired population.

Thesis: Ph. D., Massachusetts Institute of Technology, Department of Economics, 2015.
2nd and 3rd chapter co-authored with Matthew Rognlie. Cataloged from PDF version of thesis.
Includes bibliographical references.
This thesis consists of three chapters on monetary and fiscal policy. The first chapter explores the importance of redistribution in explaining why monetary policy has aggregate effects on household consumption. I argue that traditional representative agent models focusing on substitution effects ignore a key component of the monetary policy transmission mechanism, which exists because those who gain from accommodative monetary policy have higher marginal propensities to consume (MPCs) than those who lose. I use a sufficient statistic approach to show that, provided households' elasticities of intertemporal substitution are reasonably small, redistributive effects can be as important as substitution effects in explaining the response of aggregate consumption to real interest rate changes in the U.S. My calibrated general equilibrium model predicts that, if U.S. mortgages all had adjustable rates, the effect of interest-rate changes on consumer spending would more than double and would be asymmetric, with rate increases reducing spending by more than cuts would increase it. The second chapter, joint with Matthew Rognlie, explains why a monetary union between countries (such as the Eurozone today) may lead to a stronger fiscal union. Since exchange rates can no longer adjust to offset shocks, the presence of nominal rigidities implies that fiscal risk-sharing becomes more valuable in a monetary union. As a result, countries in such a union are capable of overcoming their lack of commitment to fiscal transfers. However, inefficient equilibria without fiscal transfers remain possible. We derive implications for the optimal policy of the central bank when the fiscal union is under stress. The third chapter, also joint with Matthew Rognlie, studies the possibility that feedbacks between sovereign bond spreads and governments' desire to default may lead to multiple equilibria in sovereign debt markets. We show that such multiplicity does not exist in the infinite-horizon model of Eaton and Gersovitz (1981), a widely adopted benchmark for quantitative analyses of these markets. Our proof may be important to understand Euro government bond markets, and calls for renewed attention on the theoretical conditions that are needed for sovereign debt models to generate multiple equilibria.
by Adrien Auclert.
Chapter 1. Monetary policy and the redistribution channel -- Chapter 2. Monetary union begets fiscal union -- Chapter 3.Unique equilibrium in the Eaton-Gersovitz model of sovereign debt.
Ph. D.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003.
Includes bibliographical references (p. 128-133).
The chapters included here investigate the general relation between fiscal policy and elections. Chapter 1 provides a general summary of the 3 main chapters. Chapter 2 examines local and non-local public expenditures and how the two are linked through the political process. Emphasis is placed on the role of voter composition within localaties in order to look at the effects of suburbanization on expenditures. Chapter 3 examines the validity of the medan voter result when turnout is allowed to depend on policy platforms. With endogeneous turnout there may be multiple equilibria or a motivation to pull policy platforms away from the median and towards the mode of the voter distribution. Chapter 4 examines the link between presidential elections and the economy. Democratic election victories are often followed by a booming economy when compared to Republican victories. The instrument by which the president may influence the economy, however, is difficult to find. This chapter investigates the role of fiscal policy in explaining the impact of elections. It finds only a limited role for fiscal policy in the linkage from elections to the economy.
by John S. Irons, Jr.
Ph.D.

This thesis analyses the macroeconomic effects of changes in fiscal policy. Chapter 1 provides an overview. Chapter 2 estimates the macroeconomic effects of tax changes in the United Kingdom. Identification is achieved by constructing an extensive new 'narrative' dataset of 'exogenous' tax changes in the post-war U.K. economy. Using this dataset I find that a 1 per cent cut in taxes increases GDP by 0.6 per cent on impact and by 2.5 per cent over three years. These findings are remarkably similar to narrative-based estimates for the United States. Furthermore, 'exogenous' tax changes are shown to have contributed to major episodes in the U.K. post-war business cycle. The long appendix contains the detailed historical narrative and dataset. Chapter 3 estimates the endogenous feedback from output, debt and government spending to fiscal instruments in the United States. The central innovation is to make direct use of narrative-measured tax shocks in a DSGE model estimated using Bayesian methods. I therefore assume the tax shocks are observable, rather than latent variables. I show that the feedback from debt to the fiscal instruments is weaker than previously estimated and that the capital tax multiplier is higher. Moreover, the data are more consistent with a model with endogenous feedback than one with an exogenous fiscal policy specification. Chapter 4 examines the transmission mechanism of government spending shocks by constructing and estimating a DSGE model for the United States. I show that the endogenous response of different taxes and the strength of wealth effect on labour supply play a powerful role. Given that there is little prior information on the strength of these mechanisms, I estimate the key parameters in the model. I show that this estimated model can match the empirical responses of key variables that are a challenge for many models of this type.

Mestrado em Economia Monetária e Financeira
O desempenho económico de um país depende sobretudo da relação entre as autoridades monetária e fiscal. Usando dados de painel e um conjunto individual de 14 países da União Europeia desde 1970 a 2012, estudámos as políticas de ambas as autoridades e como as mesmas são influenciadas por determinadas variáveis económicas e eventos (Tratado de Maastricht, Pacto de Estabilidade e Crescimento, euro e crises). Os resultados mostram que a inflação tem um impacto significativo na política monetária e que os governos aumentam o seu saldo primário diante de crescimentos da dívida. Um outro objectivo é caracterizar as interacções que os bancos centrais e os governos nacionais estabelecem, ou seja, se as suas políticas se complementam ou se existe uma política dominante. As nossas provas apresentam uma relação de substituição entre as duas autoridades, onde o banco central assume um papel mais rígido, especialmente no caso de níveis elevados de dívida.
The economic performance of a country depends notably on the relation between monetary and fiscal authorities. Using a panel data and an individual set of 14 EU countries from 1970 to 2012, we study the type of policies of both authorities, and how they are influenced by certain economic variables and events (Maastricht Treaty, Stability and Growth Pact, euro and crises). Results show that inflation has a significant impact on monetary policy, and that governments raise their primary balance when facing debt increases. Another goal is to characterize the type of interactions central banks and national governments establish, i.e. if their policies complement one another or if there is a more dominant one. Our evidence shows a substitution relation between both authorities, where central bank assumes a demanding role, especially in the case of higher levels of debt.

This thesis comprises of four essays on fiscal policy and fiscal policy adjustment. The first of these essays, Chapter 2, reviews a wide range of literature about fiscal policy. This chapter also discusses the sudden stop and fiscal policy during sudden stops episodes. Chapter 3 constructs a simple dynamic deterministic model to study how the speed of adjustment to a sustainable level of debt affects economic welfare. The simulation results in Chapter 3 suggest that in order to bring the level of external debt to a sustainable level as required by foreign lenders, the small open economy will attempt to delay adjustment as long as possible. Chapter 4 uses a Structural Vector Autoregression Model to estimate government consumption multipliers for groups of countries. The empirical results suggest that: (i) The higher degree of financial openness, the larger the government consumption multiplier. (ii) The government consumption multiplier is significantly bigger in countries with higher levels of external debt. (iii) The higher the level of financial development, the smaller the government consumption multiplier. (iv) The government consumption multiplier in countries with fixed exchange rates seems to be bigger than in countries with a flexible exchange rate regime. Chapter 5 of this thesis analyses four case study countries including Greece, Latvia, Pakistan and Turkey. This chapter finds that fiscal policy choice varies across countries because there are many possible determinants for this. It will also be determined that all factors including the level of public debt, level of external debt and monetary policy, especially exchange rate regime, affects the fiscal policy choice of each country. Furthermore, Chapter 5 also points out that political economy can influence fiscal policy directly and indirectly.

This dissertation examines issues on taxation, fiscal policy, and governance in developing countries. The three chapters of the dissertation are summarized as follows:In the first chapter, we argue that models of advanced countries are often applied to developing countries with little consideration for differences in economic structures. Deviating from this norm, we examine fiscal policy effects in a simple DSGE model structured after a developing economy with credit constraints. Building a model akin to that of a developing economy largely dominated by an agriculture sector, we allow for agents that are credit constrained and noncredit-constrained . First, we observe and provide new evidence that allowing for household heterogeneity significantly alters how fiscal policy affects consumption, output, and labor in developing countries when compared to standard representative agent models. Second, we find that shocks are more subdued in the two agent model than the representative agent model when simulated with data for developing countries.For the second chapter, we contribute to the literature on tax models and the field of public economics by examining the fiscal policy effects of a small developing country if it adopts a comprehensive progressive tax structure.We analyze this under the context where a large proportion of households are credit constrained. We discover that under a progressive tax structure, the government finances its purchases by increasing taxes for those with access to financial markets while reducing taxes of households that are credit-constrained suggesting evidence of income redistribution. Finally, we find that macroeconomic analyses are considerably different when the tax structure is progressive compared to flat thereby having several policy implications for developing countries.Lastly, in the third chapter, we use annual aggregate data for 58 developing countries covering the period 2000-2015 to investigate whether alternative elements of governance have differing effects on the relationship between total public debt and private investment. First, results suggest that total public debt is considerably lower in countries with good governance while private investment thrives in countries with favorable political regimes. Second, there is evidence of crowding out(total public debt displaces private investment) with the extent of crowding out largely related to governance. Government effectiveness and corruption are the governance in-dicators that appear to have the greatest impact on investment. Corruption is found to be the most important aspect of governance in terms of the relationship between total public debt and private investment: an increase in total public debt has the greatest effect on reducing private investment in countries with low levels of corruption

Die vorliegende Dissertation beschäftigt sich mit der Fragestellung, ob Fiskalpolitik die Gesamtnachfrage erhöhen kann, wenn eine Reihe von Haushalten und Unternehmen Finanzierungsbeschränkungen unterliegt. Das erste Essay liefert Evidenz zur Größe von Fiskalmultiplikatoren aus der Eurozone und den USA. Das Essay kommt zu dem Schluss, dass es in der Literatur hinreichend Hinweise gibt, dass expansive Fiskalpolitik, insbesondere in Form einer Erhöhung der Staatsausgaben oder in Form gezielter Transfers an liquiditätsbeschränkte Haushalte, die Wirtschaftstätigkeit in einer tiefen Rezession stark stimulieren kann. Das zweite Essay untersucht die Auswirkungen der Fiskalpolitik auf den privaten Konsum in Abhängigkeit vom Stadium des Konjunkturzyklus sowie dem Zustand der öffentlichen Finanzen. Die Untersuchung wird für ein jährliches Panel bestehend aus 16 OECD Ländern für den Zeitraum von 1970-2011 durchgeführt. Die Studie zeigt, dass Liquiditätsbeschränkungen bei den Haushalten die Wirksamkeit der Fiskalpolitik in den betrachteten Regimes verändern. Das dritte Essay geht der Frage nach der Größe des Staatsausgabenmultiplikators in einem DSGE-Modell mit Finanzintermediation nach. Als Hauptergebnis ist herauszustellen, dass der kumulierte Multiplikators einer vorübergehenden Erhöhung der Staatsausgaben in Regimen, in denen sich Banken Finanzierungsbeschränkungen gegenübersehen, größer als eins ist. Im Gegensatz dazu ist der Multiplikator kleiner als eins, wenn die Finanzierungsbeschränkungen gelockert sind. Das vierte Essay beschäftigt sich mit der Interaktion von Finanzierungsbeschränkungen und Arbeitsmarktimperfektionen. In der Modellökonomie wird ein positiver Produktivitätsschock durch endogene Fluktuationen an den Finanzmärkten verstärkt. Das Essay weist nach, dass, wenn Löhne über Nash-Verhandlungen gesetzt werden, ein Produktivitätsschock die Volatilität der Löhne substantiell erhöht.
This dissertation asks whether fiscal policy can be effective in boosting aggregate demand when borrowing constraints bind tightly across a wide range of households and firms. The work consists of four essays. The first essay surveys evidence on fiscal multipliers from the Euro area and the United States. From this essay it can be concluded that there is ample evidence in the literature that expansionary fiscal policy, especially in the form of an increase in government purchases or in targeted transfers to liquidity-constrained households, may strongly stimulate economic activity in times of a deep recession. The second essay examines the effects of fiscal policy on private consumption conditional on the phase of the business cycle and the state of the public finances in a yearly panel of 16 OECD countries. The essay demonstrates that binding liquidity constraints on households can alter the efficacy of the policy changes in the four regimes---defined by the conditioning states. The third essay examines the size of the government purchases multiplier in a dynamic stochastic general equilibrium model with financial intermediation. The main result is that the size of the cumulative multipliers of a temporary rise in government purchases is higher than one in regimes when financing constraints on banks bind tightly. In contrast, in times when financing constraints are loose the multipliers are smaller than one. The fourth essay studies the interaction between financing constraints and labor market imperfections and the role of this interaction in the labor market dynamics. In the model economy, a positive productivity shock is amplified through endogenous fluctuations in the financial market. The essay shows that if wages are set via Nash bargaining, the productivity shock increases substantially the volatility of wages.

Mestrado em Economia Monetária e Financeira
This paper assesses the possible contribution of monetary expansions for the existence of expansionary fiscal consolidations, using annual panel data for 14 European Union countries over the period 1970-2019. The paper adopts a two-fold approach: it combines the usual CAPB approach used to identify fiscal consolidations with the narrative approach, and extends this approach to include dummy variables for identifying monetary expansions. A fiscal consolidation couple with a monetary expansion does produce little evidence of non-Keynesian effects, thus, monetary expansions does not contribute for the existence of expansionary fiscal consolidations. Moreover, Panel Probit estimations suggest monetary developments even contribute negatively for success of fiscal consolidations. For other success variables, duration and size contribute in a positive way and expenditure based consolidations lead to a decrease in debt to GDP ratio.
info:eu-repo/semantics/publishedVersion

The dissertation studies what determines the different response of the economy to fiscal stabilizations, and fiscal policy in general, and investigates the channels through which fiscal policy influence the macroeconomy
Thesis (PhD) — Boston College, 2000
Submitted to: Boston College. Graduate School of Arts and Sciences
Discipline: Economics

Thesis (Ph.D.) -- University of Maryland, College Park, 2009.
Thesis research directed by: Dept. of Economics. Title from t.p. of PDF. Includes bibliographical references. Published by UMI Dissertation Services, Ann Arbor, Mich. Also available in paper.

This thesis tackles three different issues of relevance for economic policy, with an explicit reference to the Euro area. Does the inclusion of monetary targeting in a monetary policy strategy improve macroeconomic stability? Which role does the banking sector play in the impulse and transmission of shocks? Which fiscal tools have the greatest and the most persistent impact on the real economy, helping effective stabilization policy design? Answers to each question, derived from data-matching dynamic general equilibrium models, imply noteworthy indications for policy-makers.
Esta tesis afronta tres temas de relevancia en lo que se refiere a la política económica en la zona euro. ¿Establecer un objetivo monetario en la conducción de la política monetaria contribuye a alcanzar una estabilidad macroeconómica? ¿Qué papel desempeña el sector banquero en el impulso y en la transmisión de choques macroeconómicos? ¿Cuales son los instrumentos de política fiscal con el mayor y más persistente impacto sobre la economía real, capaces de ayudar en el diseño de políticas de estabilización eficaces? Las respuestas a cada pregunta, derivadas desde modelos de equilibrio económico general dinámicos ajustados a los datos, permiten extraer indicaciones útiles para las autoridades responsables de las políticas económicas.

L'objectiu d'aquesta tesi és analitzar com s'han de concebre les polítiques fiscals i monetàries en un context en què els polítics tenen problemes de credibilitat. Es desenvolupen metodologies i aplicacions per mostrar com diferents graus de credibilitat de les institucions polítiques afecten la determinació d'impostos, deute públic, instruments monetaris i, en general, els resultats econòmics.

En el primer capítol - Loose commitment (Compromís Dèbil) -, s'introdueix una nova metodologia per resoldre problemes de política òptima tenint en compte que els polítics podrien no complir les seves promeses, i analitza els efectes de la credibilitat sobre la imposició sobre el capital i sobre el treball. El segon capítol - Political Disagreement Lack of Commitment and the Level of Debt (Desacord Polític, Falta de Compromís i el Nivell de Deute) - considera un cas en què la credibilitat es limitada per el fet d'haver-hi alternança entre polítics amb objectius diferents. En particular, es mostra com l'alternança política i la falta de compromís afecten el nivell de deute públic. Finalment, el tercer capítol - The Macroeconomic Effects of Unstable Monetary Policy Objectives (Els Efectes Macroeconòmics de la Inestabilitat dels Objectius de Política Monetària) - analitza com la possibilitat de canvis en els objectius influeixen en les decisions de política monetària.
El objetivo de esta tesis es analizar cómo se deben concebir las políticas fiscales y monetarias en un contexto en que los políticos tienen problemas de credibilidad. Se desarrollan metodologías y aplicaciones para mostrar cómo diferentes grados de credibilidad de las instituciones políticas afectan la determinación de impuestos, deuda pública, instrumentos monetarios y, en general, los resultados económicos.

En el primer capítulo - Loose commitment (Compromiso Débil)-, se introduce una nueva metodología para resolver problemas de política óptima tomando en cuenta que los políticos podrían no cumplir con sus promesas, y analiza los efectos de la credibilidad sobre la imposición sobre el capital y el trabajo. El segundo capítulo - Political Disagreement Lack of Commitment and the Level of Debt (Desacuerdo Político, Falta de Compromiso y el Nivel de Deuda) - considera un caso en que la credibilidad está limitada por el hecho de que hay alternancia entre políticos con distintos objetivos. En particular, se muestra cómo la alternancia política y la falta de compromiso afectan el nivel de deuda pública. Por último, el tercer capítulo - The Macroeconomic Effects of Unstable Monetary Policy Objectives (Los Efectos Macroeconómicos de la Inestabilidad de los Objetivos de Política Monetaria) - analiza cómo la posibilidad de cambios en los objetivos influye en las decisiones de política monetaria.
The purpose of this thesis is to analyze how fiscal and monetary policies should be designed in a context where policymakers have credibility problems. Methodologies and applications are developed to show how different degrees of policymakers' credibility affect the determination of policy choices, such as taxes or monetary instruments, and more generally the economic outcomes.

The first chapter - Loose Commitment -, introduces a new methodology to solve optimal policy problems taking into account that policymakers may not fulfill their promises, and analyzes the effects of policymakers' commitment on capital and labor taxation. The second chapter - Political Disagreement, Lack of Commitment and the Level of Debt - considers a case where commitment is limited by the fact that policymakers with different objectives alternate in office. In particular, it is shown how lack of commitment and political turnover affect the level of public debt. Finally, the third chapter - The Macroeconomic Effects of Unstable Monetary Policy Objectives - analyzes how the possibility of changes in policy objectives influences monetary policy choices.

Esta tesis trata sobre cómo la autoridad fiscal debe fijar los impuestos distorsivos de manera óptima. El capítulo 1 analiza el problema de la política fiscal cuando el gobierno tiene un incentivo a hacer default con su deuda externa. El capítulo 2 trata sobre el problema de la política fiscal cuando los agentes no conocen cómo el gobierno fija las tasas impositivas. La principal conclusión que obtengo es que, en ambos contextos, el resultado de suavidad de las tasas, que es estándar en la literatura de imposición óptima, se rompe. Cuando los gobiernos no tienen una tecnología de compromiso, los impuestos responden a los incentivos de default; cuando los agentes poseen información parcial sobre el modelo subyacente de la economía, los impuestos dependen de sus expectativas sobre los mismos.
This thesis is about how fiscal authority should optimally set dissorting taxes. Chapter 1 deals with the optimal fiscal policy problem when the government has an incentive to default on external debt. Chapter 2 deals with the optimal fiscal policy problem when households do not know how government sets taxes. The main conclusion I get is that, in each of these two contexts, the tax smoothing result, which is the standars result in the optimal taxation literature, is broken. When governments do not have a commitment technology taxes respond to the incentives to default; when agents have partial information about the underlying economic model, taxes depend on their beliefs about it.