QSPS Conference. May, 2013 Utah State University

Transcription

1 QSPS Conference Ayşe Imrohoro¼glu May, 2013 Utah State University

2 QSPS Conference Long-run

3 Japanese Saving Rate Japan 0.20 Saving Rate U.S Net national saving rates

4 Japanese Saving Rate Perhaps we need: Demographics Borrowing constraints Social Security Taxes Low initial capital stock OLG? In nite Horizon?

5 Japanese Saving Rate Benchmark Model 0.20 Saving Rate Data OLG

6 Japanese Saving Rate Saving Saving Rate Benchmark Model In nite Horizon

7 Japanese Saving Rate Data Constant Growth Saving Rate Depreciation Tax The e ects of depreciation and tax rate

8 Japanese Saving Rate Turned out that a simple neoclassical growth model with annual TFP, taxes and depreciation rate would account for the data Data 0.20 TFP only Saving Rate All time series except TFP Main determinants of the saving rate

9 U.S. Saving Rate How about the U.S?

10 U.S. Saving Rate Data 0.14 Saving Rate TFP Time Series Only Role of TFP - U.S.

11 U.S. Saving Rate GNP per person GNP per person model data hours hours per capita model data year year capital model data labor productivity model data capital productivity year year

12 U.S. Saving Rate For the U.S. need the labor wedge.

13 U.S. Debt How about the future

14 Debt as Percentage of U.S. GDP U.S. Debt Signi cant increase in projected debt to GDP by the CBO extended baseline alternative Debt to GDP

15 Revenues as Percentage of U.S. GDP U.S. Debt Main reason for the di erences in projections: Revenue assumptions extended baseline alternative Tax Revenues/GDP

16 U.S. Debt In the CBO projections D/Y stabilize if marginal tax rates on labor income increase from 25% in 2011 to 35% in 2035, Labor supply e ects are not incorporated into these projections

17 U.S. Debt How would things behave in a neoclassical growth model? Take into account behavioral responses to policy

18 Framework Households There is a representative household with N t working-age members, facing the following problem: subject to max t=0 β t N t [log c t + α log(1 h t )] C t + K t+1 [1 + (1 τ k,t )(r t δ t )]K t + (1 τ h,t )w t H t +TR t + N t π p t ]

19 Framework Firms Firm s problem is to maximize pro ts. The production function is given by: Y t = A t Kt θ 1 H θ t, Aggregate capital stock K t follows K t+1 = (1 δ t )K t + X t,

20 Framework Government Government Budget Constraint G t + TR t = τ h,t w t H t + τ k,t (r t δ t )K t N t π p t.

21 Framework Government Real Government Debt: B g t+1 = (Bg t + GB t ) P t /P t+1 where GB t is net borrowing (revenues minus expenditures)

22 Framework Solution Start from given initial conditions Compute an equilibrium transition path towards a balanced growth path

23 Calibration Constant Parameters: Standard capital share θ = 0.4. subjective discount factor, β = share of leisure in the utility function, α = 1.45

24 Calibration Calibration of the period and beyond: Capital Income Tax Benchmark H is t. Tax Benchmark H is t. Tax Labor Income Tax Population Grow th R ate 1.1 TFP factor year year Data and Assumptions for the Future

25 Calibration: Interest on government debt After 2010: In ation rate: 2%; Nominal interest rate: 3.3%

26 K/Y ratio X/Y Ratio GNP per person hours Results: Past 1.5 GNP per person 0.46 Hours per Capita da ta model Capital Output Ratio 0.2 In v e s tmen t Output R a tio year year Data and the Model

27 Results: Past Budget Balance data model Debt/GNP year year Data and the Model

28 Results: Future How about the future?

29 Results: Future Examine Debt/GNP with exogenous labor and higher taxes (CBO s extended benchmark) with endogenous labor and higher taxes

30 GNP per person D/Y ratio hours K/Y ratio Results: Exogenous versus Endogenous Inputs 0.46 Hours per Capita 3.6 Capital Output Ratio year year GNP per person Debt to Output Ratio exog endo year year Exogenous versus Endogenous Inputs

31 Results: Endogenous Labor - Higher Taxes Table 3: Economic Consequences of Higher Taxes Elasticity 1.0 Elasticity 0.5 High tax Hist. tax High tax Hist. tax D/Y in 2035 (%) D/Y in 2080 (%) Y/N growth ( ) Y/N growth ( ) Welfare 4.47% 3.23%

32 Detrended Output per Person Results Counterfactual: If labor could go back to good old days Counterfactual Benchmark year GDP per person

33 Results Counterfactual: If labor could go back to good old days Debt to GNP in 2035: 123%

34 Results Counterfactual: In ation! 4% in ation: Debt to GDP 133% by % in ation: Debt to GDP shrinks down to 104% by 2035

35 Table 5: Summary Table Debt-to-GNP Ratio in 2035 (%) CBO benchmark projections 74 High Tax Rates CBO exp.; exogenous inputs 63 CBO exp.; endogenous inputs 106 Historical Tax Rates (Endogenous Inputs) CBO expenditures 174 CBO exp.; high labor wedge and TFP gr. 123 CBO exp.; 4% in ation 132 Bowles-Simpson expenditures 120

36 Conclusion Modern day back of the envelope calculations High debt/gdp ratio likely to continue into 2035 s Welfare cost of higher taxes between 3%-5%

37 Expenditures as Percentage of U.S. GDP If not taxes what? G SS G Expenditures/GDP

38 Expenditures as Percentage of U.S. GDP Health Care Medicare G SS Medicare2 G Expenditures/GDP

39 Health Expenditures as Percentage of GDP Health Care Canada Germany Japan Norway Spain Sweeden UK, US Health Expenditures/GDP

40 Health Care Increase in Health Care Expenditures Canada 65% Germany 93% Japan 89% Norway 118% Spain 171% Sweden 47% UK 118% US 145%

41 Health Care Will do research on health care!

42 QSPS Conference Thank you!