How much additional tax revenue can the government generate by increasing labor income taxes? In this paper we provide a quantitative answer to this question, and study the importance of the progressivity of the tax schedule for the ability of the government to generate tax revenues. We develop...

We present new evidence showing that fiscal austerity strengthens support for redistribution, especially for the relatively well-off. Our theoretical model proposes two mechanisms to explain this heterogeneity in support for redistribution: "altruism" and "appreciation". We test our theoretical...

This paper presents a comprehensive framework examining fiscal sustainabil- ity in developing economies. It integrates public capital, labor informality, and global liquidity shocks in a two-sector DSGE model for a small open economy, revealing their intricate interplay and nonlinear impact on...

We develop a Fiscal Frontier which traces out the maximum government debt level that can be sustained at a given welfare cost. Through duality, the intertemporal policy mix underpinning the Frontier mirrors standard Ramsey policy and defines an upper limit on the welfare gains that can be...

This study uses simulations of state-dependent distributions of fiscal limits for 18 economies in Central America and the Caribbean to better understand governments' ability to service their debt, arising from endogenously determined dynamic Laffer curves. Using a small, open economy model to...

We develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The stochastic fiscal limits, which measure the ability and willingness of the government to service its debt, arise endogenously from a dynamic Laffer curve. The...

Using the Reinhart-Rogoff dataset, we find a debt threshold not around 90 percent but around 30 percent above which the median real GDP growth falls abruptly. Our work is the first to formally test for threshold effects in the relationship between public debt and median real GDP growth. The null...

We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary...

In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct...

This paper investigates how tax revenue elasticities develop with respect to their tax base and analyses the specific impact of the business cycle. The main novelty of the paper is to use revenue data net of discretionary tax measures. Based on an EU country panel for the period 2001-13, we...