The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom

Patterson, Kerry; Pesaran, Bahram

doi:10.2307/2109371

Cited by 78 publications

(36 citation statements)

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“…Hall (1988) has argued that consumption growth is insensitive to changes in the interest rate and, hence, the elasticity of substitution (1/σ) is close to zero. The subsequent literature, see for instance Patterson and Pesaran (1992) and the more recent study by Yogo (2004), conÞrms this result and reports a σ in the range between 5 and 10. Given these estimates, we conclude that a cut in the capital input tax Þnanced by a higher payroll tax is good for growth but bad for employment.…”

Section: Switch From Capital Input Taxes To Payroll Taxesmentioning

confidence: 54%

Employment and Growth Effects of Tax Reforms

Michaelis

Birk

2004

SSRN Journal

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The authors gratefully acknowledge helpful comments from Michael Bräuninger, Jörg Lingens, and Michael Pflüger, and from participants at research seminars in Göttingen, Hannover, Kassel, Mannheim and Regensburg. Employment and Growth Effects of Tax Reforms ABSTRACTThis paper explores how revenue-neutral tax reforms impact employment and economic growth in a model of endogenous growth and search frictions on the labor market. We analyze how savings and the incentive to create new jobs are affected by tax swaps between wage income taxes, payroll taxes, capital income taxes and taxes levied on capital costs. In our framework, the payroll tax is found to be neutral. If this tax is used to finance a cut in the capital income tax, we will observe an increase in both growth and, via the capitalization effect, employment. Most other tax reforms, however, imply a trade-off between employment and growth.

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Section: Switch From Capital Input Taxes To Payroll Taxesmentioning

confidence: 54%

Employment and Growth Effects of Tax Reforms

Michaelis

Birk

2004

SSRN Journal

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“…In particular, the intertemporal elasticity of substitution -the parameter that determines the household's willingness to adjust the time path of planned full consumption in response to changes in interest rates and effective marginal tax rates -has attracted much interest among researchers. Estimated values are commonly either in a low range of 0.2 to 0.4 (see Hall (1988): US time-series data, Bayoumi (1990): UK timeseries data and Patterson and Pesaran (1992): US and UK quarterly time-series data) or in a high range of 1.0 to 1.3 (see Lawrance (1991): US panel data and Mankiw, Rotemberg and Summers (1985): US quarterly time series). We take a value of 0.8 as an average of these estimated values.…”

Section: The Parametrisationmentioning

confidence: 99%

European Pension Systems: A Simulation Analysis

Kenç¹,

Perraudin²

1997

Fiscal Studies

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Pension systems in different countries vary widely in such aspects as the dependence of benefits on earlier labour income, the minimum permitted retirement age and limits on labour supply after retirement. This paper uses a simulation model of a rational, utility-maximising household facing the detailed pension provisions of eight European countries to study microeconomic distortions induced by the different rules and regulations. We examine in particular the impact on savings, labour supply, retirement age decisions and welfare.JEL classification: H55, J26, J65.

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“…Many authors such as Campbell (1999), Kocherlakota (1996), Patterson and Pesaran (1992), Vissing-Jørgensen and Attanasio (2003), Alan and Browning (2010) or Alan et al (2009) estimate coe cients of risk aversion well above unity, or equivalently, elasticities of substitutions below unity. See also Attanasio and Weber (2010) for a recent survey.…”

Section: Introductionmentioning

confidence: 99%

Risk aversion in a model of endogenous growth

Ghiglino

Tabasso

2016

Journal of Mathematical Economics

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Despite the evidence on incomplete financial markets and substantial risk being borne by innovators, current models of growth through creative destruction predominantly model innovators' as risk neutral. Risk aversion is expected to reduce the incentive to innovate and we might fear that without insurance innovation completely disappears in the long run. The present paper introduces risk averse agents into an occupational choice model of endogenous growth in which insurance against failure to innovate is not available. We derive a clear negative relationship between the level of risk aversion and long run growth. Surprisingly, we show that in an equilibrium there exists a cut-o↵ value of risk aversion below which the growth rate of the mass of innovators tends to a strictly positive constant. In this case, innovation persists on the long run and consumption per capita grows at a strictly positive rate. On the other hand, for levels of risk aversion above the cut-o↵ of value, the economy eventually stagnates.

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The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom

Cited by 78 publications

References 0 publications

Employment and Growth Effects of Tax Reforms

Employment and Growth Effects of Tax Reforms

European Pension Systems: A Simulation Analysis

Risk aversion in a model of endogenous growth

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