acase@tulane.edu

This dissertation is concerned with the theoretical and empirical development of a macroeconomic model to be used as a vehicle for a detailed analysis of fiscal policy. Both supply and demand side aspects of fiscal policy are examined but primary emphasis is placed on supply side considerations The supply side of the economy is developed by incorporating fiscal parameters into a synthesized version of the Lucas and Rapping (1969) and Lucas (1973) models of aggregate supply. The theoretical argument is made that laborers substitute labor intertemporally in response to transitory tax manipulations that change the value of the current after tax real wage relative to its normal level. Aggregate supply is also shown to respond to real interest rate fluctuations and expectational errors in evaluating aggregate prices The novel feature of the theory of aggregate demand is the inclusion of the expected governmental surplus as an argument in the consumption and investment functions, based on the work of Barro (1974), Kochin (1974) and Tanner (1979, 1981), arguing that rational consumers discount future tax liabilities. Otherwise the treatment of aggregate demand is standard After the development of the theories of supply and demand a detailed analysis of the feasibility of fiscal policy is carried out. Fiscal policy is shown to be able to affect the demand side of the economy only if the fiscal manipulations are unexpected or if future tax liabilities are imperfectly discounted. Fiscal policy is shown to affect the supply side of the economy through transitory tax manipulations that lead to intertemporal substitutions of labor supply. Indirect channels involving real interest rate fluctuations and expectational errors hinge on the ability of fiscal policy to affect aggregate demand Empirically, strong support exists for the hypothesis that aggregate supply does respond negatively to temporary tax manipulations. This evidence is reaffirmed in the context of Phillips curve and aggregate employment equations. Additionally, the Barro-Tanner-Kochin hypothesis is verified empirically. Given these empirical results the conclusion emerges that expected fiscal manipulations cannot affect aggregate demand but can affect aggregate supply through transitory tax manipulations / acase@tulane.edu

acase@tulane.edu

acase@tulane.edu

acase@tulane.edu

acase@tulane.edu

acase@tulane.edu

acase@tulane.edu

During the past twenty years, states have come to rely on taxes that exhibit a high degree of instability or variation in their yields, while budget policies are constrained by legal restrictions. The problems generated by tax revenue instability and these legal restrictions have led to undesirable tax and spending policies in response to unbalanced budgets. Recently, politicians and economists have been exploring and experimenting with various solutions so that these undesirable budget policies can be avoided The opening chapter provides a succinct description of tax revenue stability and a summary of the stability measures for each major tax source. Chapter 2 addresses the specific econometric issues in measuring stability and short run forecasting of tax revenues. The reasons for changing tax structures and legal restrictions on budget policies are examined. The recent behavior of state policy makers in response to deficits is then documented. We argue that, because of the instability of and restrictions on state fiscal systems, the observed adjustment behavior has not been as efficient as it could. In Chapter 3 we present potential solutions for problems associated with state fiscal structures. These solutions include stressing the recent use of contingency policies, is the contingency fund The contingency fund allows monies to be set aside during good economic times, and are available in the future when poor economic conditions prevail. While the current design of contingency funds appear to have been based on an arbitrary set of rules and consider political rather than economic criteria, it is possible to design an efficient fund based on economic principles. Two separate issues are involved for solving a problem of this nature: measuring the uncertainty and deriving an optimal forecast of tax revenues. We show that the solution is of a form such that the Kuhn-Tucker conditions are both necessary and sufficient for an interior optimal solution. In addition, the discounted multiperiod social welfare function is shown to increase with the contingency fund. Combining our solution with our measures of uncertainty, we perform a sensitivity analysis on the various parameters of the model and estimate their effect on the optimal contingency fund. As we expected, the size of the contingency fund grows as the degree of uncertainty rises. (Abstract shortened with permission of author.) / acase@tulane.edu

This study develops a model of the energy sector of the Brazilian economy to provide a framework for planning and assessing energy policy The increased cost of petroleum imports--a commodity critically needed for maintaining planned growth and development--has caused severe economic distortions and balance of payments difficulties for Brazil. The complexity of these problems makes assessment of the potential impact of compensatory policy measures a difficult task The objective of this work is to assist the policy-maker or researcher by providing a general structural model for forecasting energy demand and evaluating alternative energy scenarios in terms of their effects on balance of payments and external debt The energy demand forecasting model takes economic and demographic data as inputs and generates as outputs the energy requirements of each of several energy sectors or sources. This input-output model is developed to establish the correspondence between output and energy consumption for each of sixteen economic sectors. The energy requirements of the optimal solution of the I-O model can then be compared with the energy supply and economic growth assumptions of the Brazilian government Additionally, this report analyzes the economic implications of changing the energy-mix in Brazil by substituting domestic energy sources for imported oil For each supply scenario the costs of oil imports and investment in the energy sector are introduced into the balance of payments and the external debt accounts to determine their impact The illustrative examples of this work suggest that in a ten-year period a Brazilian government committed to policies encouraging the development and use of domestic energy sources may be able to meet its growing foreign exchange expenses for oil while simultaneously improving the living standard of its population / acase@tulane.edu