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on European Economics |
| By: | Keith Küster (University of Frankfurt); Volker Wieland (University of Frankfurt) |
| Abstract: | In this paper, we examine the cost of insurance against model uncertainty for the Euro area considering four alternative reference models, all of which are used for policy-analysis at the ECB.We find that maximal insurance across this model range in terms of aMinimax policy comes at moderate costs in terms of lower expected performance. We extract priors that would rationalize the Minimax policy from a Bayesian perspective. These priors indicate that full insurance is strongly oriented towards the model with highest baseline losses. Furthermore, this policy is not as tolerant towards small perturbations of policy parameters as the Bayesian policy rule. We propose to strike a compromise and use preferences for policy design that allow for intermediate degrees of ambiguity-aversion.These preferences allow the specification of priors but also give extra weight to the worst uncertain outcomes in a given context. |
| Keywords: | Model uncertainty, robustness, monetary policy rules, minimax, euro area. |
| JEL: | E52 E58 E61 |
| Date: | 2005–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200513&r=eec |
| By: | Marta González; Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | This paper quantifies the macroeconomic and distributional implications of an array of flat tax reforms for Spain. A standard general equilibrium economy with heterogeneous agents is used to infer the behavioral parameters of individuals and to evaluate the impact of the tax reforms. We find that a revenue neutral reform with a marginal tax equal to 17.42% and a fixed deduction equal to 15% of per capita income will yield increases in aggregate consumption and labor productivity equal to 7.6% and 2.5% respectively. Admittedly, this type of reforms also generate increases in the gini indices of after tax income and consumption. However, a revenue neutral flat tax reform with a marginal tax equal to 23.37% and a fixed deduction equal to 35% still displays aggregate gains and has the good property that people in the lowest quintile of wage distribution pay lower taxes and enjoy higher consumption than under the current income tax. |
| Keywords: | Income tax, policy reform, heterogeneous agents, general equilibrium. |
| JEL: | H31 E62 D31 C68 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2005_0505&r=eec |
| By: | Michele Boldrin; Sergi Jimenez-Martin |
| Date: | 2005–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:784828000000000392&r=eec |