TY - JOUR
T1 - The macroeconomic effects of distortionary taxation
AU - McGrattan, Ellen R.
N1 - Copyright:
Copyright 2014 Elsevier B.V., All rights reserved.
PY - 1994/6
Y1 - 1994/6
N2 - Prescott (1986) estimates that technology shocks account for 75% of the fluctuations in the postwar U.S. economy. This paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances. I find that a significant fraction of the variance of aggregate consumption, investment, output, capital stock, and hours of work can be explained by disturbances in labor and capital tax rates and government consumption. I also use the model to quantify the welfare costs of capital and labor taxation. For both the time series and welfare calculations, maximum likelihood estimates of taste, technology and policy parameters are used.
AB - Prescott (1986) estimates that technology shocks account for 75% of the fluctuations in the postwar U.S. economy. This paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances. I find that a significant fraction of the variance of aggregate consumption, investment, output, capital stock, and hours of work can be explained by disturbances in labor and capital tax rates and government consumption. I also use the model to quantify the welfare costs of capital and labor taxation. For both the time series and welfare calculations, maximum likelihood estimates of taste, technology and policy parameters are used.
KW - Business cycle fluctuations
KW - Dynamic general equilibrium
KW - Maximum likelihood
KW - Taxation
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U2 - 10.1016/0304-3932(94)90044-2
DO - 10.1016/0304-3932(94)90044-2
M3 - Article
AN - SCOPUS:38149146016
SN - 0304-3932
VL - 33
SP - 573
EP - 601
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 3
ER -