Posch, Olaf
Waelde, Klaus
Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle
and on the altitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor
allocation is efficient. With endogenous fluctuations and growth, decentralized factor allocation is inefficient and (time-invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare.
Bibliographic reference |
Posch, Olaf ; Waelde, Klaus. Natural Volatility, welfare and taxation. ECON Working Papers ; 2005/09 (2005) |
Permanent URL |
http://hdl.handle.net/2078.1/5693 |