Marco Maffezzoli

Tax Evasion under Market Incompleteness

Marco Maffezzoli — Wed, 14 Sep 2011 01:56:14 PDT

Empirical evidence suggests that the distribution of income and its composition play an important role in explaining tax noncompliance. We address the issue from a macroeconomic point of view, building a dynamic general equilibrium Bewley-Huggett-Aiyagari model that endogenizes tax evasion and income heterogeneity. Our results show that the model can successfully replicate the salient qualitative and quantitative features of U.S. data. In particular, the model replicates the shape of the cross-sectional distribution of misreporting rates over true income levels. Furthermore, we show that a switch from progressive to proportional taxation has important quantitative effects on noncompliance rates and tax revenues.

LSM: A DSGE model for Luxembourg

Szabolcs Deák et al. — Wed, 14 Sep 2011 01:52:25 PDT

Luxembourg is a small open economy with a set of particular features, including rather limited competition in the domestic goods market, strong union power, and a segmented labor market for resident and non-resident workers. In this paper we develop a medium scale DSGE model that captures these features, calibrate it to mimic the actual behavior of the key macroeconomic aggregates, and use it to conduct policy experiments aimed at relaxing some of the existing rigidities in the goods and labor market.

Tax Cuts in Open Economies

Alejandro Cuñat et al. — Mon, 28 Jan 2008 05:07:10 PST

A reduction in income tax rates generates substantial dynamic responses within the framework of the standard neoclassical growth model. The short-run revenue loss after an income tax cut is partly - or, depending on parameter values, even completely - offset by growth in the long-run, due to the resulting incentives to further accumulate capital. We study how the dynamic response of government revenue to a tax cut changes if we allow a Ramsey economy to engage in international trade: the open economy's ability to reallocate resources between labor-intensive and capital-intensive industries reduces the negative effect of factor accumulation on factor returns, thus encouraging the economy to accumulate more than it would do under autarky. We explore the quantitative implications of this intuition for the US in terms of two issues recently treated in the literature: dynamic scoring and the Laffer curve. Our results demonstrate that international trade enhances the response of government revenue to tax cuts by a relevant amount. In our benchmark calibration, a reduction in the capital-income tax rate has virtually no effect on government revenue in steady state.

Specialization Patterns and the Factor Bias of Technology

Alejandro Cuñat et al. — Wed, 25 Jul 2007 14:53:46 PDT

Development accounting exercises based on an aggregate production function find technology is biased in favor of a country's abundant production factors. We provide an explanation for this finding based on the Heckscher-Ohlin model. Countries trade and specialize in the industries that use intensively the production factors they are abundantly endowed with. For given factor endowment ratios, this implies smaller international differences in factor price ratios than under autarky. Thus, when measuring the factor bias of technology with the same aggregate production function for all countries, they appear to have an abundant-factor bias in their technologies.

Can Comparative Advantage Explain the Growth of US Trade?

Alejandro Cuñat et al. — Fri, 15 Jun 2007 06:27:05 PDT

We present a dynamic comparative advantage model in which moderate reductions in import tariffs can generate sizable increases in trade volumes over time. A fall in tariffs has two effects. First, for given factor endowments, it raises the degree of specialization, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country's abundant factor, leading to diverging paths of relative factor endowments and a rising degree of specialization. A simulation exercise shows that a fall in tariffs produces a disproportional increase in the trade share of output as in the data.

Importazione di beni intermedi e trasferimento della tecnologia: un approccio di crescita endogena

Marco Maffezzoli — Wed, 07 Mar 2007 03:14:12 PST

This paper studies the relationships between imports of technologically advanced intermediate goods, technology transfers, and economic development in a small open economy, within an endogenous growth framework with R&D. The model describes a small NIC that exports a final consumption good and imports technologically advanced intermediate goods, enjoying international knowledge spillovers directly proportional to the imports/output ratio. Starting from a situation in which the local knowledge stock is lower than the one available abroad, the model initially presents a higher growth rate than the foreign one, featuring a cath-up in the long run: during the transition, resources flow gradually from the R&D sector to the consumption good sector. These features may help explaining the Asian NICs growth experience: in particular, the model’s dynamic behaviour of technological progress and sectoral resource allocation may justify their spectacular growth rates and their propensity to invest in the accumulation of technological capabilities.

Hecksher-Ohlin Business Cycles

Alejandro Cuñat et al. — Wed, 07 Mar 2007 02:50:34 PST

This paper introduces Heckscher–Ohlin trade features into a two-country dynamic stochastic general equilibrium model, and studies the international transmission of productivity shocks through trade in goods. This framework improves upon existing international real business cycle models in that it generates business cycle properties comparable with the empirical evidence regarding the terms of trade and the trade balance.

Neoclassical Growth and Commodity Trade

Alejandro Cuñat et al. — Wed, 07 Mar 2007 02:47:44 PST

We construct a dynamic Heckscher-Ohlin model in which the initial distribution of production factors across economies makes factor price equalization impossible. The model produces dynamics similar to those of the neoclassical growth model. However, free trade prevents identically parameterized economies from achieving identical steady states. Although poor economies grow faster than rich economies during the transition to the steady state, the former do not catch up with the income per capita levels of the latter. A many-country version of the model exemplifies the open-economy neoclassical growth model's ability to produce interesting distribution dynamics of income per capita.

Non-Walrasian Labor Markets and Real Business Cycles

Marco Maffezzoli — Wed, 07 Mar 2007 02:43:00 PST

The standard Real Business Cycle literature mainly focuses on Walrasian models designed to fit the US institutional framework. Differences between the US and Europe, mostly evident in the labor market, suggest that a purely Walrasian model may be inappropriate to study European business cycles. I present a stochastic version of the dynamic general equilibrium model in Daveri and Maffezzoli (2000), where unemployment is generated by monopolistic unions, and calibrate it to reproduce several long-run features of the Italian and US economies. The properties of our model are compared to an indivisible labor model built on Hansen (1985) and Rogerson and Wright (1988). I focus on the impulse reponse functions, the standard business cycle statistics, and the ability to reproduce the cyclical components of the main macroeconomic variables. The main results are: (i) the impulse response functions of the Monopoly Union (MU) model show a higher degree of overall persistence; (ii) the business cycle statistics are similar; (iii) the MU model enjoys a statistically significative advantage in reproducing the Italian business cycles, while its alternative seems to better explain the US business cycles.

Human capital and international real business cycles

Marco Maffezzoli — Wed, 07 Mar 2007 02:37:12 PST

Standard international real business cycle models are generally unable to replicate the observed comovements of all the main aggregate variables: in particular, they generate low or negative international comovements in output, investment, and labour. I simulated a two-country, two-sector stochastic endogenous growth model that embodies an externality linking human capital across countries. This model is able to reproduce positive international correlations for all the main variables and is partially able to reproduce their ranking. These results are robust to changes in the entire set of parameters, as shown in a global sensitivity analysis performed by applying Canova's methodology.

Convergence Across Italian Regions and the Role of Technological Catch-Up

Marco Maffezzoli — Wed, 07 Mar 2007 02:25:13 PST

This paper suggests that the main (and possibly unique) source of beta- and sigma-convergence in GDP per worker (i.e. labor productivity) across Italian regions over the 1980-2004 period is the change in technical and allocative efficiency, i.e. convergence in relative TFP levels. To obtain this result, I construct an approximation of the production frontier at different points in time using Data Envelope Analysis (DEA), and measure efficiency as the output-based distance from the frontier. This method is entirely data-driven, and does not require the specification of any particular functional form for technology. Changes in GDP per worker can be decomposed into changes in relative efficiency, changes due to overall technological progress, and changes due to capital deepening. My results suggest that: (i) differences in relative TFP are quantitatively important; (ii) while technological progress and capital deepening are the main, and equally important, forces behind the rightward shift in the distribution of GDP per worker, convergence in relative TFP is the main determinant of the change in its shape.