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Title:Natural volatility, welfare and taxation PDF Logo
Authors:Posch, Olaf
Wälde, Klaus
Issue Date:2005
Series/Report no.:Würzburg economic papers 57
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.
Subjects:Endogenous fluctuations and growth
welfare analysis
taxation
stochastic continuous time model
Poisson uncertainty
JEL:O33
H3
E32
C65
E62
Document Type:Working Paper
Appears in Collections:W.E.P. - Würzburg Economic Papers, Lst. f. VWL, Geld u. internat. Wirtschaftsbeziehungen, Universität Würzburg

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