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Fiscal Deficits, Asset Prices and Intergenerational Distribution in an Open Unionized Economy

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  • Erling Steigum Jr.

Abstract

This paper focuses on intergenerational welfare effects of fiscal deficits in an OLG model with wage bargaining and equilibrium unemployment. Changes in wage and profit tax rates alter the intergenerational distribution by affecting capital accumulation as well as the price of a fixed asset. The welfare effect on the first old generation crucially depends on the tax instruments applied. The intergenerational welfare effects of postponing labor taxes are qualitatively similar to the effects in a model without unions. Increased union power will depress output and the asset price, but the sign of the welfare effect in steady state is nevertheless ambiguous.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 97-19.

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Handle: RePEc:kud:epruwp:97-19

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  1. Kehoe, Patrick J., 1987. "Coordination of fiscal policies in a world economy," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 349-376, May.
  2. Devereux, Michael B. & Lockwood, Ben, 1991. "Trade unions, non-binding wage agreements, and capital accumulation," European Economic Review, Elsevier, vol. 35(7), pages 1411-1426, October.
  3. Buiter, W.H. & Kletzer, K.M., 1990. "The Welfare Economics Of Cooperative And Noncooperative Fiscal Policy," Papers 612, Yale - Economic Growth Center.
  4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, October.
  5. Torsten Persson, 1983. "Deficits and Intergenerational Welfare in Open Economies," NBER Working Papers 1083, National Bureau of Economic Research, Inc.
  6. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  7. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  8. Hoel, Michael, 1991. "Union Wage Policy: The Importance of Labour Mobility and the Degree of Centralization," Economica, London School of Economics and Political Science, vol. 58(230), pages 139-53, May.
  9. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  10. Fried, Joel & Howitt, Peter, 1988. "Fiscal deficits, international trade and welfare," Journal of International Economics, Elsevier, vol. 24(1-2), pages 1-22, February.
  11. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  12. Chang, Roberto, 1990. "International coordination of fiscal deficits," Journal of Monetary Economics, Elsevier, vol. 25(3), pages 347-366, June.
  13. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  14. de la Croix, David & Licandro, Omar, 1995. " Underemployment, Irreversibilities and Growth under Trade Unionism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 385-99, September.
  15. Broer, Peter D. & Lassila, Jukka, . "Pension Policies and Public Debt in Dynamic CGE Models," ETLA A, The Research Institute of the Finnish Economy, number 23.
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