Search results

This paper explores the effects of fiscal policy in an economy with reciprocity in labor relations and fair wages, consumption taxes and a common income tax rate in place.

To this end, a dynamic general-equilibrium model with government sector is calibrated to Bulgarian data (1999–2018). Two regimes are compared and contrasted – the exogenous (observed) vs optimal policy (Ramsey) case. The focus of the paper is on the relative importance of consumption vs income taxation, as well as on the provision of utility-enhancing public services. Bulgarian economy was chosen as a case study due to its major dependence on consumption taxation as a source of tax revenue.

(1) The optimal steady-state income tax rate is zero; (2) the benevolent Ramsey planner provides the optimal amount of the utility-enhancing public services, which are now three times lower; (3) the optimal steady-state consumption tax needed to finance the optimal level of government spending is 18:7%.

This is the first study on optimal fiscal policy with reciprocity in labor relations.

This paper aims to explore the effects of fiscal policy in an economy with efficiency wages, consumption taxes and a common income tax rate.

A dynamic general-equilibrium model with the government sector is calibrated to Bulgarian data (1999–2018). Two regimes are compared and contrasted – the exogenous (observed) vs optimal policy (Ramsey) case.

The main findings are as follows: (1) The optimal steady-state income tax rate is zero. (2) The benevolent Ramsey planner provides three times lower amount of the utility-enhancing public services. (3) The optimal steady-state consumption tax needed to finance the optimal level of government spending is 18.7%.

The focus of the paper is on the relative importance of consumption vs income taxation, as well as on the provision of utility-enhancing public services. Bulgarian economy was chosen as a case study due to its major dependence on consumption taxation as a source of tax revenue.

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2021-0488.

The authors introduce non-Ricardian (“hand-to-mouth”) myopic agents into an otherwise standard real-business-cycle (RBC) setup augmented with a detailed government sector. The authors investigate the quantitative importance of the presence of nonoptimizing households for cyclical fluctuations in Bulgaria.

The authors calibrate the RBC model to Bulgarian data for the period following the introduction of the currency board arrangement (1999–2018).

The authors find that the inclusion of such non-Ricardian households improves model performance along several dimensions and generally provides a better match vis-a-vis data, as compared to the standard model populated with Ricardian agents only.

This is a novel finding in the macroeconomic studies on Bulgaria using modern quantitative methods.

The author augments an otherwise standard business cycle model with a richer government sector and adds money-in-utility (MIU) considerations to study economic fluctuations.

More specifically, real money balances enter in a non-separable way with consumption and leisure. This specification is then calibrated to Bulgarian data after the introduction of the currency board (1999–2020) gives a role to money in accentuating economic fluctuations.

This novel mechanism allows the framework to reproduce – better than the real business cycle (RBC) model – the observed variability and correlations among model variables, and those characterizing the labor market in particular. In addition, money is non-neutral and affects aggregate economic activity.

This is the first micro-founded monetary-DSGE (dynamic stochastic general equilibrium) model on Bulgaria trying to explain the role of money for economic fluctuations.

The author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market.

This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999–2018), allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular.

As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which help the model match data better, as compared to a setup without rigidities.

The findings suggest that technology shocks seem to be the dominant source of economic fluctuations, but nominal wage rigidities as well as the monopolistic competition in the product market, might be important factors of relevance to the labor market dynamics in Bulgaria, and such imperfections should be incorporated in any model that studies cyclical movements in employment and wages.

The computational experiments performed in this paper suggest that wage rigidities are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria, which is a novel result.

The purpose of this paper is to show a standard RBC model, when augmented with a VAT evasion channel, where evasion depends on the consumption tax rate, can produce a hump-shaped consumption-Laffer curve.

The methodology is in the spirit of modern quantitative macroeconomic literature.

The model with VAT evasion can generate a peaking consumption tax revenue curve, which is a little discussed result in the taxation literature.

The paper contributes to the public finance literature by providing evidence for the importance of the evasion mechanism, while at the same time adding to the debate about the existence of a peak tax rate for consumption tax revenue.

Contrary to popular belief, raising VAT rate as a cheap way (being a tax on demand) to finance government expenditure, is still not a free lunch, and raising the rate, especially in a country with substantial VAT evasion, quickly leads to a drop in the revenue associated with that category.

This is the first study that provides a tractable model of VAT evasion, and a setup where consumption tax revenue curve is peaking.

The purpose of this paper is to explore the problem of non-convex labor supply decision in an economy with both discrete and continuous labor decisions. In contrast to the setup in McGrattan et al. (1997), here each household faces an indivisible labor supply choice in the market sector, while it can choose to work any number of hours in the non-market sector.

The authors show how lotteries as in Rogerson (1988) can again be used to convexify consumption sets, and aggregation over individual preferences.

With a mix of discrete and continuous labor supply decisions, disutility of non-market work becomes separable from market work, and the elasticity of the latter increases from unity to infinity.

As a possible venue for future research, the authors plan to feed the derived aggregate utility function above in a sophisticated real-business-cycle model to investigate the effect of those preferences for the transmission of technology and fiscal shocks.

This is a novel and interesting result in the aggregation literature.

In this study, inventories are introduced as a productive input into a real-business-cycle (RBC) setup augmented with the government.

The model is calibrated to Bulgarian data for the period 1999–2019. The quantitative importance of the presence of inventories is investigated.

The quantitative effect of inventories is found to be important: decreasing consumption volatility and increasing employment variability. Those results, however, are at the expense of decreasing wage volatility and increasing investment volatility, and generally worsening the contemporaneous correlations of the main variables with output.

Fluctuations in inventory levels matter for business cycle fluctuations in Bulgaria, which is a novel result. Still, there is a need for more research on the incorporation of inventories into RBC models to better fit the Bulgarian experience.