Synopsis
Excerpt from A Tax-Based Test for Nominal Rigidities
After rejecting these null hypotheses, we focus on the relevance of these rejections for the presence of nominal rigidities. If nominal rigidities are present, then we expect prices to rise and output to fall for some time after a tax switch. The response of real wages depends on whether price or wage rigidities are more important. To investigate these dynamic effects, we compute our systems' predicted responses to a permanent change in tmix. We also followed Mishkin's (1979) approach and examined the effect of a tmix impulse given its actual stochastic process. This procedure avoids the problems which might arise if permanent shocks to tmix are widely at variance with the historical experience. Because the results were very similar to those for permanent shocks, only the latter are reported in Section IV.
The reduced forms described above may be subject to some of the criticisms which have been directed at the vector autoregression approach of Sims We have not posited an explicit structural model, and the parameters in our reduced forms might vary with changes in the policy regime. However, we use our reduced forms only to estimate the effects of certain policy changes within a given policy regime. Our view is not that our equations explain how tmix could be used as a major tool of stabilization policy, or evenfthe effects of radical changes in the tmix variable outside the sample experience. Rather, we believe that the estimated response of prices and output to changes in tmix, given the current policy regime, can shed light on the existence of nominal rigidities.
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About the Author
James M. Poterba is Mitsui Professor in the Department of Economics at MIT. He has been Director of the NBER Public Economics Research Program since 1991 and has edited volumes 6-20 of "Tax Policy and the Economy".
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Paperback. Condition: New. Print on Demand. This book uses data from the United Kingdom and the United States to explore the effects of changing tax policy by comparing real-world instances of tax reforms from 1948 through 1984. The author constructs a particular tax-rate variable to differentiate between direct and indirect taxes. The author challenges the common economic perception that when prices are in equilibrium, a tax change's impact will not vary based on which side of the market it is levied upon. Instead, the author presents a concept of sticky prices, where time is required for the market to reach a new equilibrium. Using a time-series of tax reforms, the author finds strong evidence of the significance of tax revenue source and measures of the short and long-term economic effects of tax changes on prices, wages, and output. This book is a reproduction of an important historical work, digitally reconstructed using state-of-the-art technology to preserve the original format. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in the book. print-on-demand item. Seller Inventory # 9781332283989_0
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