The recent general trend of cutting top marginal income tax rates in industrialized economies and the policy concern of enhancing competition in the US and the EU product markets subtly motivate the question if low income tax rates are optimal in an economy with imperfectly competitive markets....

This paper studies the Ramsey problem of optimal labor income taxation in a simple model economy which deviates from a first best representative agent economy in three important aspects, namely, flat rate second best tax, monopoly power in intermediate product market, and monopolistic wage...

Optimal tax policies in dynamic models have unappealing features. In particular, optimal tax reform typically involves a large initial accumulation of government assets which is responsible for a large part of the welfare gains from optimal tax reform. In this paper, we investigate the...

The German Income Tax Reform 2000, which announced a reduction in income tax rates to be implemented in a series of three stages, was welcomed by the public as a step towards unleashing lurking growth potentials. Nonetheless, in the course of the year 2001 a dispute arose, centering around the...

We investigate the dynamic effects of five different fiscal shocks on the US economy using a structural vector autoregressive (SVAR) model that uses Blanchard-Quah type restrictions. We find that an increase in indirect taxes or in corporate taxes has a contractionary effect on the economy,...

This paper provides some further tests for the proposition that a larger public sector leads to smaller output volatility. Both Gali and Fatas & Mihov have provided some evidence which appears to support this proposition. Their evidence is, however, based on a relatively small sample of...

This paper reconsiders the case for the use of fiscal policy based on a "functional finance" approach that advocates the use of fiscal policy to secure high levels of demand in the context of private aggregate demand, which would otherwise be too low. This "functional finance" view means that...

Bad policies (i.e., policies harmful to private producers such as excessive taxation, arbitrary confiscation, and negligence of pubic goods) are observed in quite a few countries. These countries tend to have autocratic regimes.I explore a reason why bad policies may benefit autocrats.I present...