In DSGE models, fiscal policy is typically described by simple rules in which tax rates respond to the level of output. We show that there is only weak empirical evidence in favor of such specifications in U.S. data. Instead, the cyclical movements of labor and capital income tax rates are...

A political-economic theory of fiscal policy is presented in which tax policy preferences are derived from a conflict of interest between individuals of different ages. Policy formation is fully rational in that an individual's beliefs regarding future policies are consistent with...

This paper analyzes the effects of intergenerational conflict on capital and labor income tax rates, transfers, and government spending in a model of multidimensional policy choice. The different nature of tax liabilities for the young and the old can explain why the old receive large gross...

This paper explores the implications of economic and political inequality for the comovement of government purchases with macroeconomic fluctuations. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income...

This paper evaluates the extent to which a DSGE model can account for the impact of tax policy shocks. We estimate the response of macroeconomic aggregates to anticipated and unanticipated tax shocks in the U.S. and find that unanticipated tax cuts have persistent expansionary effects on output,...

Treating public policies as computable dynamic general equilibrium model specification errors offers computational and conceptional advantages for comparing models with data. By calculating the set of policies that rationalize observed behavior, the substantive economic question then becomes...

Augmenting a standard Bewley model with an entrepreneurial sector and occupational heterogeneity allows us to study important channels through which fiscal policies affect aggregate variables, factor prices, wealth distribution and welfare. To disentangle the forces involved, we consider...

Recent empirical work finds that government spending shocks can cause aggregate consumption to increase. This paper builds on the framework of imperfect information in Lucas (1972) and Lorenzoni (2009) to show how government spending can stimulate consumption. Owners of firms targeted by an...

We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing...

We consider the extent to which cross-country differences in the intergenerational persistence of income can be explained by differences in government spending on early childhood education. We build a life-cycle model where human capital is accumulated in early, middle and late childhood. Both...