We argue that the fiscal policies adopted early in World War I by the U.K. were responsible for its poor economic performance during the interwar period. In September 1915, the U.K. embarked on a set of non-tax-smoothing policies collectively known as the McKenna rule. The key dictum of the...

Over the years, optimal taxation has been extensively discussed, and a major focus has been on the question of whether the optimal capital income tax rate is zero in long-run equilibrium. This paper addresses this issue in the context of a model of vintage capital with technical change and the...

This paper explores the role that recessions play in resource allocation. The conventional cleansing view, advanced by Schumpeter in 1934, argues that recessions promote more efficient resource allocation by driving out less productive units and freeing up resources for better uses. However,...

Over the last 20 years, the annual average U.S. and Canadian productivity growth rates have been 2.3% and 1.3%, respectively. The objective of this paper is twofold. First, we empirically document the firm size distribution and the productivity for the two countries. Second, we quantitatively...

We construct a general equilibrium New-Keynesian model in which firms differ in characteristics such as size, book value, sensitivity to market demand and degree of price stickiness. This establishes an explicit economic relation between firm level characteristics and the relationship between...

Empirical literature on investment and output dynamics is characterized by two robust stylized facts at the macro level. First, investment is considerably more volatile than output. Second, fluctuations of output and investment are highly synchronized. Furthermore, at the micro level, firm...

The empirical difficulties associated with estimating the effects of changes in interest rates and corporate tax policy on business fixed investment are often blamed on a lack of identification. In this paper, we study the effect of variation in interest rates on investment spending, employing a...

This paper studies the conditions under which new equipment may endogenously occur. To this end, we construct an endogenous growth multisectoral model with a preeminent new equipment sector. Technological progress is embodied: New machines can only be run on the most recent generations of...