Fiscal Policy, Maintenance Allowances and Expectation-Driven Business Cycles
AbstractFirms devote significant resources to maintain and repair thei existing capital. Within a real business cycle model featuring arguably small aggregate increasing returns, this paper assesses the stabilizing effects of fiscal policies with a maintenance expenditure allowance. In this setup, firms are authorized to deduct their maintenance expenditures from revenues in calculating pre-tax profits, as in many prevailing tax codes. While flat-rate taxation does not prove useful to insulate the economy from self-fulfilling beliefs, a progressive tax can render the equilibrium unique. However, we show that the required progressivity to protect the economy against sunspot-driven fluctuations is increasing in the maintenance-to-GDP ratio. Taking into account the maintenance and repair activity of firms, and the tax deductibility of the related expenditures, would then weaken the expected stabilizing properties of progressive fiscal schedules.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00389691.
Date of creation: May 2009
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00389691
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Business cycles; maintenance and repair allowances; capital utilization; progressive income taxes; local indeterminacy and sunspots.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-02 (All new papers)
- NEP-DGE-2009-08-02 (Dynamic General Equilibrium)
- NEP-MAC-2009-08-02 (Macroeconomics)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.