Tax smoothing in a business cycle model with capital-skill complementarity

Angelopoulos, K., Asimakopoulos, S. and Malley, J. (2015) Tax smoothing in a business cycle model with capital-skill complementarity. Journal of Economic Dynamics and Control, 51, pp. 420-444. (doi:10.1016/j.jedc.2014.11.002)

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Publisher's URL: http://dx.doi.org/10.1016/j.jedc.2014.11.002

Abstract

This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity and endogenous skill acquisition under technology and public expenditure shocks. We find that skilled and unskilled labour tax smoothing maintain quantitatively under externalities and exogenous shocks in skill acquisition, as well as when the relative skill supply is exogenously determined. We further find that the government finds it optimal to reduce both the size of the wedge between the marginal rates of substitution and transformation in skill attainment in the long-run and the standard deviation of this wedge over the business cycle. This is achieved by subsidising skill creation and taxing both types of labour income.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Malley, Professor James and Angelopoulos, Dr Konstantinos and Asimakopoulos, Mr Stylianos
Authors: Angelopoulos, K., Asimakopoulos, S., and Malley, J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Dynamics and Control
Publisher:Elsevier
ISSN:0165-1889
ISSN (Online):1879-1743
Copyright Holders:Copyright © 2014 The Authors
First Published:First published in Journal of Economic Dynamics and Control 51:420-444
Publisher Policy:Reproduced under a Creative Commons License

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
577261Glasgow - ESRC Standard Research Transition Standard Quota DTGMary Beth KneafseyEconomic & Social Research Council (ESRC)ES/I902414/1RSI- RESEARCH STRATEGY & INNOVATION
577262Glasgow - ESRC Standard Research Transition Standard Quota DTGMary Beth KneafseyEconomic & Social Research Council (ESRC)ES/I902414/1RSI- RESEARCH STRATEGY & INNOVATION
577263Glasgow - ESRC Standard Research Transition Standard Quota DTGMary Beth KneafseyEconomic & Social Research Council (ESRC)ES/I902414/1RSI- RESEARCH STRATEGY & INNOVATION