IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1586.html
   My bibliography  Save this paper

Macroeconomic Stabilization Through Taxation and Indexation: The use ofFirm-Specific Information

Author

Listed:
  • Richard C. Marston
  • Stephen J. Turnovsky

Abstract

This 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.

Suggested Citation

  • Richard C. Marston & Stephen J. Turnovsky, 1985. "Macroeconomic Stabilization Through Taxation and Indexation: The use ofFirm-Specific Information," NBER Working Papers 1586, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1586
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1586.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joshua Aizenman, 1983. "Wage Contracts with Incomplete and Costly Information," NBER Working Papers 1150, National Bureau of Economic Research, Inc.
    2. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    4. S. Fischer, 1976. "Wage- Indexation and Macro-Economic Stability," Working papers 177, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Fischer, Stanley, 1977. "Wage indexation and macroeconomics stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 107-147, January.
    6. Brunner, Karl & Meltzer, Allan H., 1977. "Stabilization of the domestic and international economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 1-6, January.
    7. McCallum, B. T. & Whitaker, J. K., 1979. "The effectiveness of fiscal feedback rules and automatic stabilizers under rational expectations," Journal of Monetary Economics, Elsevier, vol. 5(2), pages 171-186, April.
    8. Karni, Edi, 1983. "On Optimal Wage Indexation," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 282-292, April.
    9. Fischer, Stanley, 1977. "`Long-term contracting, sticky prices, and monetary policy' : A comment," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 317-323, July.
    10. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aizenman, Joshua & Frenkel, Jacob A., 1988. "Sectorial wages and the real exchange rate," Journal of International Economics, Elsevier, vol. 24(1-2), pages 69-91, February.
    2. Patrick Artus, 1987. "Salaire réel et emploi," Revue Économique, Programme National Persée, vol. 38(3), pages 625-660.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aizenman, Joshua & Frenkel, Jacob A, 1986. "Supply Shocks, Wage Indexation and Monetary Accommodation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 304-322, August.
    2. Aizenman, Joshua & Frenkel, Jacob A, 1985. "Optimal Wage Indexation, Foreign Exchange Intervention, and Monetary Policy," American Economic Review, American Economic Association, vol. 75(3), pages 402-423, June.
    3. Mukerji, Sujoy & Tallon, Jean-Marc, 2004. "Ambiguity aversion and the absence of wage indexation," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 653-670, April.
    4. Obstfeld, Maurice & Stockman, Alan C., 1985. "Exchange-rate dynamics," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 18, pages 917-977, Elsevier.
    5. Duca, John V. & Van Hoose, David D., 2001. "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 1-29, January.
    6. Barbosa, Fernando de Holanda, 1984. "Ensaios sobre inflação e indexação," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 43, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Turnovsky, Stephen J. & Smith, William T., 2006. "Equilibrium consumption and precautionary savings in a stochastically growing economy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 243-278, February.
    8. Danziger, Leif, 1981. "On Optimal Wage Indexation When Shocks are Real," Foerder Institute for Economic Research Working Papers 275337, Tel-Aviv University > Foerder Institute for Economic Research.
    9. Van Gompel, Johan, 1995. "Optimal wage indexation with exchange rate uncertainty in an oligopolistic and unionized economy," Economics Letters, Elsevier, vol. 48(1), pages 37-45, April.
    10. Chang, Wen-ya & Lai, Ching-chong, 1997. "Election outcomes and the stockmarket: Further results," European Journal of Political Economy, Elsevier, vol. 13(1), pages 143-155, February.
    11. Aizenman, Joshua, 1989. "Market power and exchange rate adjustment in the presence of quotas," Journal of International Economics, Elsevier, vol. 27(3-4), pages 265-282, November.
    12. Nissan Liviatan, 1983. "On Equilibrium Wage Indexation and Neutrality of Indexation Policy," NBER Chapters, in: Financial Policies and the World Capital Market: The Problem of Latin American Countries, pages 107-130, National Bureau of Economic Research, Inc.
    13. James, Jonathan G. & Lawler, Phillip, 2010. "Union objectives and indexation externalities in a monopolistically competitive economy," Research in Economics, Elsevier, vol. 64(1), pages 28-35, March.
    14. Carrillo, Julio A. & Peersman, Gert & Wauters, Joris, 2022. "Endogenous wage indexation and aggregate shocks," Journal of Macroeconomics, Elsevier, vol. 72(C).
    15. Eijffinger, Sylvester & Schaling, Eric & Hoeberichts, Marco, 1998. "Central bank independence: A sensitivity analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 73-88, February.
    16. André Roncaglia de Carvalho, 2013. "Inflation, structural change and conflict in post-disinflation Brazil: a structuralist appraisal," Working Papers, Department of Economics 2013_25, University of São Paulo (FEA-USP).
    17. Marco Guerrazzi, 2010. "Nominal Wage Indexation, Quasi‐Equilibria And Real Wage Dynamics," Bulletin of Economic Research, Wiley Blackwell, vol. 62(3), pages 279-294, July.
    18. M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.
    19. Danziger, Leif, 1979. "Inflation and Wage Indexation," Foerder Institute for Economic Research Working Papers 275320, Tel-Aviv University > Foerder Institute for Economic Research.
    20. Mr. Joshua Aizenman, 1992. "Exchange Rate Flexibility, Volatility and the Patterns of Domestic and Foreign Direct Investment," IMF Working Papers 1992/020, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1586. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.