Natural volatility, welfare and taxation

Olaf Posch and Klaus Wälde

Working Papers from Business School - Economics, University of Glasgow

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)
JEL-codes: C65 E32 E62 H3 O33 (search for similar items in EconPapers)
Date: 2006-06
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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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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2007_33

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