Université de Lausanne
Ecole des HEC
Département d'économétrie et d'économie politique

SEMINAIRE BROWNBAG

Jeudi 25 septembre 2008, 13h00
Extranef, salle 118

Luca ONORANTE
(European Central Bank, Frankfurt am Main, Germany)

Is U.S. Fiscal Policy Optimal?

Abstract
We characterize optimal fiscal policy in a model calibrated to the U.S. economy and use it as a benchmark to evaluate actual U.S. fiscal policy. We summarize optimal and actual fiscal policies by linear tax rules whose coefficients are chosen so as to minimize the distance between the impulse responses generated under the rules and alternatively under optimal fiscal policy and under empirical VARs. As for optimal fiscal policy, we find that the optimal labor income tax rate should: a) increase in response to a positive government spending shock and decrease in response to a positive technological shock; b) respond positively to an increase in public debt; c) have limited volatility over the business cycle. Overall, the optimal income tax rate is negatively correlated with output over the business cycle. It is optimal to run budget surpluses in response to a technological shock and deficits in response to a positive government spending shock, which determines a short-run positive effect on output. As for actual U.S. tax policy we find that the income tax rate responds positively to a positive government spending shock and, against what is predicted by optimal fiscal policy, to a positive technological shock. It appears that U.S. tax policy has been "excessively" counter-cyclical with respect to output. Budget surpluses are small and barely significant following a technological shock and the output response is lower than predicted under optimal fiscal policy. Tax rates have responded negatively to an increase public debt, which raises some issues regarding the long-run sustainability of U.S. fiscal policy.

Web site of the seminar (with paper online): http://www.hec.unil.ch/deep/evenements-english/e-sem-all-2008-09.htm

eptembre 2007, 12h15
Internef, salle 123

Francesco FURLANETTO
(CREI, Barcelona and Norges Bank, Oslo)

Rule-of-thumb Consumers
and the Business Cycle

Abstract

In this paper we study the transmission mechanism of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. As a consistency exercise we show that the presence of rule-of-thumb consumers is very helpful also in accounting for recent influential empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in explaining the negative reponse of hours and the zero reponses of output and consumption after a productivity shock.

Site web du séminaire (avec texte en ligne): http://www.hec.unil.ch/deep/evenements/Brownbag2007-08.htm