Resource title

Natural volatility, welfare and taxation

Resource image

image for OpenScout resource :: Natural volatility, welfare and taxation

Resource description

Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle and on the altitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor allocation is efficient. With endogenous fluctuations and growth, decentralized factor allocation is inefficient and (time-invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare.

Resource author

Olaf Posch, Klaus Wälde

Resource publisher

Resource publish date

Resource language


Resource content type


Resource resource URL

Resource license

Adapt according to the presented license agreement and reference the original author.