Using a new approach, we reexamine the empirical evidence on the long-term interactions between inflation and real variables. We find, using over 100 years of U.S. data, that in the long run the effect of inflation on investment and output is positive (a "Tobin type effect") and the investment...

We re-examine the optimality of tax smoothing from the point of view of frictional labor markets. Our central result is that whether or not this cornerstone optimal fiscal policy prescription carries over to an environment with labor market frictions depends crucially on the cyclical nature of...

Harberger's supemeutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth...

Theories of fiscal illusion and political competition have different implications for (i) the causal relationships between taxes and spending, and (ii) government size. These are tested using data from u.s. states from 1950 to 1990. We find evidence that greater political competition generally...

Previous literature demonstrates that in a computational life cycle model the optimal tax on capital is positive and large. Given the computational complexities of these overlapping generations models it is helpful to determine the relative importance of the economic factors driving this result....

This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use...

This paper presents evidence that consumers underreact to taxes that are not salient and characterizes the welfare consequences of tax policies when agents make such optimization errors. The empirical evidence is based on two complementary strategies. First, we conducted an experiment at a...