IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1627.html
   My bibliography  Save this paper

A Tax-Based Test for Nominal Rigidities

Author

Listed:
  • James M. Poterba
  • Julio J. Rotemberg
  • Lawrence H. Summers

Abstract

In classical macroeconomic models with flexible wages and prices,whether a tax is levied on producers or consumers does not affect its incidence. However, if wages or prices are rigid in the short run, as they are in Keynesian macroeconomic models, then shifting a tax from one side ofthe market to the other may have real effects. Tax changes therefore provide potential tests for the presence of nominal rigidities. This paper examines the price and output effects of revenue-neutral shifts between direct and indirect taxation. The results, based on post-war data from both Great Britain and the United States, reject the view that wages and prices are completely flexible in the short run.

Suggested Citation

  • James M. Poterba & Julio J. Rotemberg & Lawrence H. Summers, 1985. "A Tax-Based Test for Nominal Rigidities," NBER Working Papers 1627, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1627
    Note: EFG PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1627.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Solow, Robert M, 1980. "On Theories of Unemployment," American Economic Review, American Economic Association, vol. 70(1), pages 1-11, March.
    2. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 40-58, February.
    3. Rotemberg, Julio J., 1983. "Monetary policy and costs of price adjustment," Journal of Economic Dynamics and Control, Elsevier, vol. 5(1), pages 267-288, February.
    4. J. D. Sargan, 1980. "The Consumer Price Equation in the Post War British Economy: An Exercise in Equation Specification Testing," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 113-135.
    Full references (including those not matched with items on IDEAS)

    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. Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    2. John Haltiwanger & Mark Plant, 1984. "How Should We Measure Slackness in the Labor Market?," UCLA Economics Working Papers 343, UCLA Department of Economics.
    3. Fernando Alvarez & Andrew Atkeson & Patrick J. Kehoe, 2002. "Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 73-112, February.
    4. Pavel Ryska & Jan Prùša, 2011. "Efficiency Wages in Heterogenous Labour Markets," Working Papers IES 2011/28, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2011.
    5. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    6. Hristov, Nikolay & Hülsewig, Oliver, 2017. "Unexpected loan losses and bank capital in an estimated DSGE model of the euro area," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 161-186.
    7. Benati, Luca & Lucas, Robert E. & Nicolini, Juan Pablo & Weber, Warren, 2021. "International evidence on long-run money demand," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 43-63.
    8. Andre Silva & Bernardino Adao, 2012. "Debt Financing," 2012 Meeting Papers 577, Society for Economic Dynamics.
    9. Enders, Zeno, 2010. "Heterogeneous consumers, segmented asset markets, and the effects of monetary policy," Bonn Econ Discussion Papers 08/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    10. Haltiwanger, John, 1984. "The Distinguishing Characteristics of Temporary and Permanent Layoffs," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 523-538, October.
    11. Xavier Ragot, 2018. "Limited Participation, Capital Accumulation and Optimal Monetary Policy," Sciences Po Economics Discussion Papers 2018-12, Sciences Po Departement of Economics.
    12. Cook, David, 1999. "The liquidity effect and money demand," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 377-390, April.
    13. Ingolf Schwarz, 2006. "Monetary Equilibria in a Baumol-Tobin Economy," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_15, Max Planck Institute for Research on Collective Goods.
    14. Semyon Malamud & Andreas Schrimpf, 2016. "Intermediation Markups and Monetary Policy Passthrough," Swiss Finance Institute Research Paper Series 16-75, Swiss Finance Institute.
    15. Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
    16. Spahn Peter, 2009. "The New Keynesian Microfoundation of Macroeconomics," Review of Economics, De Gruyter, vol. 60(3), pages 181-203, December.
    17. Driscoll, John C., 2004. "Does bank lending affect output? Evidence from the U.S. states," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 451-471, April.
    18. Waknis, Parag, 2017. "Demonetisation: Some Theoretical Perspectives," MPRA Paper 76391, University Library of Munich, Germany.
    19. Eswar S Prasad, 2014. "Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(3), pages 409-429, August.
    20. Andra Ghent, 2012. "Infrequent Housing Adjustment, Limited Participation, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 931-955, August.

    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:1627. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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: (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 hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.