Natural Volatility, Welfare and Taxation

Olaf Posch and Klaus Wälde

No 1748, CESifo Working Paper Series from CESifo

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 altitude 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 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Natural volatility, welfare and taxation (2006)
Working Paper: Natural volatility, welfare and taxation (2006)
Working Paper: Natural volatility, welfare and taxation (2005)
Working Paper: Natural volatility, welfare and taxation (2005)
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