Business Cycle Dynamics of a New Keynesian Overlapping Generations Model with Progressive Income Taxation



CESifo Working Paper No. 1692

Business Cycle Dynamics of a New
Keynesian Overlapping Generations
Model with Progressive Income Taxation

Abstract

In our dynamic optimizing sticky price model, agents are heterogeneous with regard to their
age and their productivity. We find that the business cycle dynamics in the OLG model in
response to both a technology shock and a monetary shock are similar, but not completely
identical to those found in the corresponding representative-agent model. In particular,
working hours in the OLG model decrease in response to a positive technological shock, since
for young workers the income effect dominates the substitution effect. This is in line with the
adverse effect of productivity shocks on employment found in structural vector
autoregressions.

JEL Code: E31, E32, E52, D31, D58.

Keywords: fluctuations, unanticipated inflation, wealth distribution, income distribution,
progressive income taxation, Calvo price staggering.

Burkhard Heer

Free University of Bolzano-Bozen


School of Economics and Management


Via Sernesi 1

39100 Bolzano-Bozen
Italy

[email protected]


Alfred Maussner

University of Augsburg
Department of Economics

Universitatsstr. 16

86159 Augsburg

Germany

[email protected]


We would like to thank Jonathan Heathcote, Victor Rιos-Rull, and Eric Young for their
comments. All remaining errors are ours. Burkhard Heer kindly acknowledges support from
the German Science Foundation (Deutsche Forschungsgemeinschaft DFG) during his stays at
Georgetown University, University of Pennsylvania, and Stanford University.



More intriguing information

1. Regional specialisation in a transition country - Hungary
2. Foreign Direct Investment and Unequal Regional Economic Growth in China
3. The Economics of Uncovered Interest Parity Condition for Emerging Markets: A Survey
4. AN EMPIRICAL INVESTIGATION OF THE PRODUCTION EFFECTS OF ADOPTING GM SEED TECHNOLOGY: THE CASE OF FARMERS IN ARGENTINA
5. The effect of classroom diversity on tolerance and participation in England, Sweden and Germany
6. Meat Slaughter and Processing Plants’ Traceability Levels Evidence From Iowa
7. The name is absent
8. Social Irresponsibility in Management
9. Wirkung einer Feiertagsbereinigung des Länderfinanzausgleichs: eine empirische Analyse des deutschen Finanzausgleichs
10. On the Integration of Digital Technologies into Mathematics Classrooms