Macroeconomic stabilization through taxation and indexation: The use of firm-specific information
AbstractThis paper considers two alternative approaches to stabilizing an economy with firm-specific productivity disturbances. The first uses wage contracts tying wages in each firm to these disturbances as well as the price level. The second uses a tax on firms which modifies their supply behavior together with a simple waqe indexation rule tying wages to prices alone. Both these schemes are viable as long as the firm-specific disturbance is known to all agents. If the firm alone observes the productivity disturbance, under either scheme it has an incentive to misrepresent current conditions. However, a combination of these two schemes is both welfare maximizing and incentive compatible.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 16 (1985)
Issue (Month): 3 (November)
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Richard C. Marston & Stephen J. Turnovsky, 1986. "Macroeconomic Stabilization Through Taxation and Indexation: The use ofFirm-Specific Information," NBER Working Papers 1586, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roger B. Myerson, 1977.
"Incentive Compatability and the Bargaining Problem,"
284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
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- Karni, Edi, 1983. "On Optimal Wage Indexation," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 282-92, April.
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- Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
- Joshua Aizenman, 1983. "Wage Contracts with Incomplete and Costly Information," NBER Working Papers 1150, National Bureau of Economic Research, Inc.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
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