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A Tax-Based Test for Nominal Rigidities

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  • Poterba, James M
  • Rotemberg, Julio J
  • Summers, Lawrence H

Abstract

In classical macroeconomic models with flexible wages and prices, whether a tax is levied on producers or consumers does not affect itsultimate incidence. If wages or prices are rigid in the short run, however, then shifting a tax from one side of the market to the othermay have real effects. Tax changes, therefore, provide potential testsfor the presence of nominal rigidities. This paper examines the priceand output effects of revenue-neutral shifts between direct and indirect taxation. The results provide evidence against the view thatwages and prices are completely flexible in the short run. Copyright 1986 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 76 (1986)
Issue (Month): 4 (September)
Pages: 659-75

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Handle: RePEc:aea:aecrev:v:76:y:1986:i:4:p:659-75

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  1. Julio J. Rotemberg, 1982. "A Monetary Equilibrium Model with Transactions Costs," NBER Working Papers 0978, National Bureau of Economic Research, Inc.
  2. Sargan, J D, 1980. "The Consumer Price Equation in the Post War British Economy: An Exercise in Equation Specification Testing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 113-35, January.
  3. Rotemberg, Julio J., 1983. "Monetary policy and costs of price adjustment," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 5(1), pages 267-288, February.
  4. Solow, Robert M, 1980. "On Theories of Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 70(1), pages 1-11, March.
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Cited by:
  1. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(4), pages 550-77, November.
  2. Yongzheng Liu & Jorge Martinez-Vazquez, 2010. "The Growth-Inequality Tradeo in the Design of Tax Structure: Evidence from a Large Panel of Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1320, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1113-1156, September.
  4. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 157-78, June.
  5. Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2003. "The role of taxes as automatic destabilizers in New Keynesian economics," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1123-1136, May.
  6. Henry, Jerome & Hernandez de Cos, Pablo & Momigliano, Sandro, 2008. "The impact of government budgets on prices: Evidence from macroeconometric models," Journal of Policy Modeling, Elsevier, Elsevier, vol. 30(1), pages 123-143.
  7. James M. Poterba, 1993. "Global Warming Policy: A Public Finance Perspective," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 47-63, Fall.
  8. Shah, Anwar, 1988. "Public infrastructure and private sector profitability and productivity in Mexico," Policy Research Working Paper Series 100, The World Bank.
  9. Daniel R. Feenberg & Andrew W. Mitrusi & James M. Poterba, 1997. "Distributional Effects of Adopting a National Retail Sales Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 49-90 National Bureau of Economic Research, Inc.
  10. von Thadden, Leopold & Lipinska, Anna, 2013. "On the (In)effectiveness of Fiscal Devaluations in a Monetary Union," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80038, Verein für Socialpolitik / German Economic Association.
  11. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
  12. Alan S. Blinder, 1988. "The Challenge of High Unemployment," NBER Working Papers 2489, National Bureau of Economic Research, Inc.

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