Department of Economics
Cambridge, MA 02138
NBER Working Papers and Publications
|September 2018||The Intertemporal Keynesian Cross|
with Adrien Auclert, Matthew Rognlie: w25020
We demonstrate the importance of intertemporal marginal propensities to consume (iMPCs) in disciplining general equilibrium models with heterogeneous agents and nominal rigidities. In a benchmark case, the dynamic response of output to a change in the path of government spending or taxes is given by an equation involving iMPCs, which we call the intertemporal Keynesian cross. Fiscal multipliers depend only on the interaction between iMPCs and public deficits. We provide empirical estimates of iMPCs and argue that they are inconsistent with representative-agent, two-agent and one-asset heterogeneous-agent models, but can be matched by models with two assets. Quantitatively, models that match empirical iMPCs predict deficit-financed fiscal multipliers that are larger than one, even if moneta...
|August 2014||Positive Long Run Capital Taxation: Chamley-Judd Revisited|
with Iván Werning: w20441
According to the Chamley-Judd result, capital should not be taxed in the long run. In this paper, we overturn this conclusion, showing that it does not follow from the very models used to derive them. For the model in Judd (1985), we prove that the long run tax on capital is positive and significant, whenever the intertemporal elasticity of substitution is below one. For higher elasticities, the tax converges to zero but may do so at a slow rate, after centuries of high capital taxation. The model in Chamley (1986) imposes an upper bound on capital taxation and we prove that the tax rate may end up at this bound indefinitely. When, instead, the bounds do not bind forever, the long run tax is indeed zero; however, when preferences are recursive but non-additive across time, the zero-capital...