Many developing countries are characterised by a large share of home production. Households allocate their time on both market and non-market activities. The introduction of a tax on labour or capital income induces people to divert from market production to home production. Furthermore,...

Welfare gains of optimal cyclical fiscal policies as computed from previous dynamic general equilibrium models seem to be small and generally do not exceed 1% of total consumption if preferences are described by a standard isoelastic utility function. It is demonstrated that the assumption of...