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
| Identifer | oai:union.ndltd.org:TULANE/oai:http://digitallibrary.tulane.edu/:tulane_23413 |
| Date | January 1983 |
| Contributors | Scott, Ralph Downing, Jr (Author) |
| Publisher | Tulane University |
| Source Sets | Tulane University |
| Language | English |
| Detected Language | English |
| Rights | Access requires a license to the Dissertations and Theses (ProQuest) database., Copyright is in accordance with U.S. Copyright law |
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