MARCO MAFFEZZOLI

Working Paper IGIER #523 (latest version: 30/7/2014)

Recent applications to the modeling of emission permit markets by means of stochastic dynamic general equilibrium models look into the relative merits of different policy mechanisms under uncertainty. The approach taken in these studies is to assume the existence of an emission constraints that is always binding (i.e. the emission cap is always smaller than what actual emissions would be in the absence of climate policy). Although this might seem a reasonable assumption in the longer term, as policies will be increasingly stringent, in the short run there might be instances where this assumption is in sharp contrast with reality. A notable example would be the current status of the European Emission Trading Scheme. This paper explores the implications of adopting a technique that allows occasionally, rather than strictly, binding constraints. With this new setup the paper sets out to investigate the relative merits of different climate policy instruments under different macro-economic shocks.

Keywords: Dynamic Stochastic General Equilibrium model, emission trading, carbon tax, occasionally binding constraints.

JEL codes: Q58, Q54, E2.

Working Paper IGIER #513 (latest version: 30/7/2014)

 FEEM - Nota di lavoro 2013.072

This paper is the first attempt, to the best of our knowledge, to study the impact of a carbon tax by means of a heterogeneous agents model. The objectives of the paper are two: i) To assess how the results of a representative agent model compare to those coming from a model accounting for heterogeneity across agents when evaluating aggregate economic and environmental impacts of a carbon tax; ii) To assess the distributional implications of a carbon tax (and equivalent cap) and how they can be mitigated through different recycling schemes or allocations.

Keywords: Carbon tax, double dividend, heterogeneous agents model
JEL codes: Q58, Q54, E2

Working Paper IGIER 454

The recent crisis has emphasized the role of financial - macroeconomic interactions, and international trade in goods and services, in the transmission of the shocks. Both phenomena, closely related to the higher degree of globalization, are very relevant for small open economies, and particularly so when a large share of the economy relies on financial and distribution services. Hence, in this paper we propose to incorporate the banking and distribution sectors into a medium scale DSGE model of a small open economy. As an illustration, the resulting model is then calibrated to match the specific characteristics of the Luxembourg economy, where the financial sector plays a key role. We believe that the results are also of more general interest for studying the reaction of small open economies to real and financial shocks.

Keywords: DSGE model, Small open economy, Banking, International trade, Luxembourg, Segmented labor market; Trade union
JEL Codes: E13; E32;

Working paper IGIER 378

Empirical evidence suggests that the distribution of income and its composition play an important role in explaining tax noncompliance. We address the issue from a macroeconomic point of view, building a dynamic general equilibrium Bewley-Huggett-Aiyagari model that endogenizes tax evasion and income heterogeneity. Our results show that the model can successfully replicate the salient qualitative and quantitative features of U.S. data. In particular, the model replicates the shape of the cross-sectional distribution of misreporting rates over true income levels. Furthermore, we show that a switch from progressive to proportional taxation has important quantitative effects on noncompliance rates and tax revenues.

Keywords: Tax Evasion, Income Heterogeneity, Incomplete markets.
JEL codes: E13, E26, H26

• Tax evasion under market incompleteness (updated 5/9/2011) (397 Kb)

IGIER Working Paper 322

A reduction in income tax rates generates substantial dynamic responses within the framework of the standard neoclassical growth model. The short-run revenue loss after an income tax cut is partly - or, depending on parameter values, even completely - offset by growth in the long-run, due to the resulting incentives to further accumulate capital. We study how the dynamic response of government revenue to a tax cut changes if we allow a Ramsey economy to engage in international trade: the open economy's ability to reallocate resources between labor-intensive and capital-intensive industries reduces the negative effect of factor accumulation on factor returns, thus encouraging the economy to accumulate more than it would do under autarky. We explore the quantitative implications of this intuition for the US in terms of two issues recently treated in the literature: dynamic scoring and the Laffer curve. Our results demonstrate that international trade enhances the response of government revenue to tax cuts by a relevant amount. In our benchmark calibration, a reduction in the capital-income tax rate has virtually no effect on government revenue in steady state.

Keywords:  international trade, Heckscher-Ohlin, dynamic macroeconomics, taxation, revenue estimation, Laffer Curve
JEL Classification: E13, E60, F11, F43, H20

• Tax Cuts in Open Economies - updated (588 Kb)