Essays on macroeconomics, fiscal policy and income mobility

• Main Author: Alloza Frutos, M.
• Other Authors: Ravn, M. O.
• Published: University College London (University of London) 2016
• Subjects: 330
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.746276

This dissertation consists of three essays on the effects of fiscal policy on different aspects of the economy. These papers share and empirical nature and exploit both macro and microdata to provide an answer to questions related to the effect of government spending and taxation in the postwar US. The second chapter analyses the impact of government spending shocks on economic activity during periods of high and low uncertainty and during periods of boom and recession. I identify exogenous government spending shocks using both a structural vector autoregression with exclusion restrictions and narrative methods based on news about future defence spending. I find that government spending shocks have larger impacts on output in booms than in recessions and larger impacts during tranquil times than during uncertain times. The third chapter investigates how taxes affect relative mobility in the income distribution in the US. I employ household panel data drawn from the PSID between 1967 and 1996 to analyse the relationship between marginal tax rates and the probability of staying in the same income decile. I identify exogenous variation in marginal tax rates by using counterfactual rates based on legislated changes in the tax schedule. I find that higher marginal tax rates reduce income mobility. The fourth chapter explores the recent trends in intergenerational mobility in the US and how fiscal policy has affected them. I consider the relationship between the level of income of fathers and sons using household data from the PSID. I then investigate how changes in taxation resulting from recent fiscal reforms may have affected such relationship. I find evidence that suggest that sons whose fathers have benefited from fiscal reforms that reduced taxes, are less likely to inherit the income status of their fathers.