Abstract
Prescott (1986) estimates that technology shocks account for 75% of the fluctuations in the postwar U.S. economy. This paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances. I find that a significant fraction of the variance of aggregate consumption, investment, output, capital stock, and hours of work can be explained by disturbances in labor and capital tax rates and government consumption. I also use the model to quantify the welfare costs of capital and labor taxation. For both the time series and welfare calculations, maximum likelihood estimates of taste, technology and policy parameters are used.
Original language | English (US) |
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Pages (from-to) | 573-601 |
Number of pages | 29 |
Journal | Journal of Monetary Economics |
Volume | 33 |
Issue number | 3 |
DOIs | |
State | Published - Jun 1994 |
Keywords
- Business cycle fluctuations
- Dynamic general equilibrium
- Maximum likelihood
- Taxation