Browsing by Subject "Fiscal policy"

Now showing 1 - 3 of 3
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    Essays in macroeconomics and taxation.
    (2011-07) Solis-Garcia, Mario Alberto
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    Essays in Political Economy
    (2018-08) Pelaez-Campomanes Guibert, Ignacio
    How does the interaction between inequality and social mobility affect the choice of fiscal policy? I analyze this question in a model of democratic poli- tics with imperfect tax enforcement, where the ability of individuals to evade taxes limits the amount of redistribution in the economy. Social mobility creates an insurance motive that increases voluntary compliance, favoring the tax enforcement process. In such an environment, redistributive pressures brought about by an increase in inequality are only implementable in highly mobile societies. On the contrary, when mobility is low, higher inequality reduces tax rates and redistribution. I empirically test this prediction using data on absolute upward mobility for the 50 US states and the District of Columbia, and measuring redistribution as state and local government expenditure per capita. I find a strong, positive and highly significant relation between inequality and redistribution for states with relatively high levels of social mobility: A one Gini-point increase in inequality is associated to roughly $800 higher expenditure per capita. This effect dissipates in states with low levels of mobility. Finally, I embed the politico-economic environment of the paper in a simple endogenous growth model, in order to analyze how inequality directly and indirectly affects the growth process when social mobility and tax evasion are taken into account.
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    Essays on Fiscal Policies in Open Economies
    (2020-07) Tran Xuan, Monica
    This dissertation consists of three chapters. A unifying theme across all chapters is the interaction between government's motive for redistribution and its commitment to repay debt. The first chapter studies optimal taxation in an open economy in which the government has a redistributive motive and faces self-enforcing debt constraints that arise from its limited commitment. Redistributive policies are proportional taxes on labor and domestic saving. Optimal labor taxes decrease over time and eventually converge to a non-zero limit, and the optimal capital tax is positive in the limit. The efficient contract features front-loading distortion and back-loading efficiency, allowing the government to borrow more in the future. The model's numerical exercise shows that a stronger redistributive motive requires greater tax distortions at the beginning of time as well as a higher external debt level in the long run. The second chapter, in turn, proposes a theory of external debt sustainability based on the government’s motive for redistribution. Given the endogenous debt constraints, the value of financial autarky determines the sustainable level of debt. Financial autarky is endogenously costly because redistribution requires high labor taxes, which distort labor supply and reduce the economy's efficiency. Having access to external financing allows the government to have more redistribution, measured as the differences in individual utilities than in financial autarky at the same level of efficiency cost. Quantitatively, the theory can account for the external debt’s recent buildup in Italy and is consistent with the positive correlation between pre-tax income inequality and external debt across countries and time periods. In response to a negative productivity shock, the optimal austerity policies are increasing external borrowing and redistribution while reducing redistribution to repay debt in the future. The magnitude of these responses varies with the underlying wage inequality. The third chapter examines how income inequality affects the sovereign default risk. I study fiscal policies in a sovereign default model with heterogeneous agents and distortionary taxation. I quantify the model in the case of Spain and find that inequality worsens the debt crisis by increasing the government's incentive to default.