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Title:Natural volatility, welfare and taxation PDF Logo
Authors:Posch, Olaf
Wälde, Klaus
Issue Date:2006
Series/Report no.:CESifo working paper 1748
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.
JEL:C65
E32
E62
H3
O33
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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