nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2005‒05‒29
four papers chosen by
Christian Zimmermann
University of Connecticut

  1. Learning-by-Doing or Habit Formation? By Hafedh Bouakez; Takashi Kano
  2. Natural volatility, welfare and taxation By Olaf, POSCH; Klaus, WAELDE
  3. Timing Tax Evasion By Dirk Niepelt
  4. Probabilistic Aging By Dominik Grafenhofer; Christian Jaag; Christian Keuschnigg; Mirela Keuschnigg

  1. By: Hafedh Bouakez; Takashi Kano
    Abstract: In a recent paper, Chang, Gomes, and Schorfheide (2002) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labour supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, the authors show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labour (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, the authors investigate which of the LBD and habit models fits the U.S. data best. Their results suggest that the habit specification is more strongly supported by the data.
    Keywords: Business fluctuations and cycles; Labour markets; Economic models; Econometric and statistical methods
    JEL: C52 E32 J22
    Date: 2005
  2. By: Olaf, POSCH; Klaus, WAELDE
    Abstract: Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle and on the attitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor allocation is efficient. With endogenous fluctuations and growth decentralized factor allocation is inefficient and (time invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare.
    Keywords: Endogenous fluctuations and growth; welfare analysis; taxation; stochastic continuous time model; Poisson uncertainty
    JEL: C65 E32 E62 H3 O33
    Date: 2005–03–15
  3. By: Dirk Niepelt (Study Center Gerzensee)
    Abstract: Standard models of tax evasion implicitly assume that evasion is either fully detected, or not detected at all. Empirically, this is not the case, casting into doubt the traditional rationales for interior evasion choices. I propose two alternative, dynamic explanations for interior tax evasion rates: Fines depending on the duration of an evasion spell, and different vintages of income sources subject to aggregate risk and fixed costs when switched between evasion states. The dynamic approach yields a transparent representation of revenue losses and social costs due to tax evasion, novel findings on the effect of policy on tax evasion, and a tractable framework for the analysis of tax evasion dynamics.
    Date: 2004–11
  4. By: Dominik Grafenhofer; Christian Jaag; Christian Keuschnigg; Mirela Keuschnigg
    Abstract: The paper develops an overlapping generations model with probabilistic aging of households. We define age as a set of personal attributes such as earnings potential, health and tastes that are characteristic of a person's position in the life-cycle. In assuming a limited number of different states of age, we separate the concepts of age and time since birth. Agents may retain their age characteristics for several periods before they move with a given probability to another state of age. Different generations that share the same age characteristics are aggregated analytically to a low number of age groups. The probabilistic aging model thus allows for a very parsimonious yet rather accurate approximation of demographic change and of life-cycle differences in earnings, wealth and consumption. Existing classes of overlapping generations models follow as special cases.
    JEL: D58 D91 H55 J21
    Date: 2005–03

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