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Distortionary taxation, international business cycles and real wage: explaining some puzzling facts

  • Francois Langot

    ()

    (GAINS-TEPP (Université du Maine))

  • Coralia Quintero-Rojas

    ()

    (Department of Economics and Finance, Universidad de Guanajuato)

In this paper, we show that fluctuations in distortive taxes can account for most puzzling features of the U.S. economy. Namely, the observed real wage rigidity, the international correlation of investment and labor inputs, and the so-called quantity puzzle (according to which cross-country correlation of outputs is higher than the one of consumptions). This is done in a two-country search and matching model with fairly standard separable preferences, extended to include a tax/benefit system.

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File URL: http://economia.ugto.org/WorkingPapers/EC201002.pdf
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Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC201002.

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Length: 30 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:gua:wpaper:ec201002
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  1. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  3. Ellen R. McGrattan & Richard Rogerson & Randall Wright, 1995. "An equilibrium model of the business cycle with household production and fiscal policy," Staff Report 191, Federal Reserve Bank of Minneapolis.
  4. Thomas Piketty & Emmanuel Saez, 2007. "How progressive is the US federal tax system? A historical and international perspective," Post-Print halshs-00754244, HAL.
  5. Christina D. Romer & David H. Romer, 2007. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," NBER Working Papers 13264, National Bureau of Economic Research, Inc.
  6. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
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