TY  - JOUR
AU  - Marston,Richard C.
AU  - Turnovsky,Stephen J.
TI  - Macroeconomic Stabilization Through Taxation and Indexation:  The use ofFirm-Specific Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1586
PY  - 1986
Y2  - March 1986
UR  - http://www.nber.org/papers/w1586
L1  - http://www.nber.org/papers/w1586.pdf
N1  - Author contact info:
Richard C. Marston
Department of Finance, Wharton School
University of Pennsylvania, 2300 Steinberg-Dietric
3620 Locust Walk
Philadelphia, PA  19104-6367
Tel: 215/898-7626
Fax: 215/573-2242
E-Mail: marstonr@wharton.upenn.edu

Stephen Turnovsky
Department of Economics
301 Savery Hall; Mail Stop DK 30
University of Washington
Seattle, WA   98195
Tel: 206-545-8028
E-Mail: sturn@u.washington.edu
AB  - This paper considers two alternative approaches to stabilizing an economy with firm-specific productivity disturbances. The first uses wage contracts tying wages in each firm to these disturbances as well as the price level. The second uses a tax on firms which modifies their supply behavior together with a simple waqe indexation rule tying wages to prices alone. Both these schemes are viable as long as the firm-specific disturbance is known to all agents. If the firm alone observes the productivity disturbance, under either scheme it has an incentive to misrepresent current conditions. However, a combination of these two schemes is both welfare maximizing and incentive compatible.
ER  -