Modeling of government spending and endogenous tax rates in New Keynesian models : the case of Czech Republic
| Thesis title in Czech: | Modelování vládních výdajů a endogenní zdanění v modelech nového Keynesiánství : případ České republiky |
|---|---|
| Thesis title in English: | Modeling of government spending and endogenous tax rates in New Keynesian models : the case of Czech Republic |
| Key words: | New Keynesian models, government spending, tax rules, Czech Republic |
| English key words: | New Keynesian models, government spending, tax rules, Czech Republic |
| Academic year of topic announcement: | 2010/2011 |
| Thesis type: | diploma thesis |
| Thesis language: | angličtina |
| Department: | Institute of Economic Studies (23-IES) |
| Supervisor: | doc. PhDr. RNDr. Josef Stráský, Ph.D. |
| Author: | hidden - assigned by the advisor |
| Date of registration: | 08.06.2011 |
| Date of assignment: | 08.06.2011 |
| Date and time of defence: | 28.06.2012 00:00 |
| Venue of defence: | IES |
| Date of electronic submission: | 16.05.2012 |
| Date of proceeded defence: | 28.06.2012 |
| Opponents: | doc. Ing. Pavel Mertlík, CSc. |
| Guidelines |
| The government spending, along with taxes are some of the most neglected parts of the real business cycle and new Keynesian models. While that may not matter so much for the fully developed economies, it remains a question whether the government spending and tax rate allocation may not be substantially more important for emerging economies such as the Czech Republic. The importance of government spending and their structure increased after the recent development after recession in 2008 – the economies have recovered growth in GDP but at the cost of towering government debt. This “fake” growth and its effect on the other main factors of the economy definitely does deserve attention.
New Keynesian models are the perfect tool for modelling of the effects of the government spending and the tax rate rules on the economy. In order to utilize these models, the government spending and, more importantly, tax rate rules must be estimated in such form that it might be incorporated into the models. Further, the benchmark New Keynesian model must be created. This model will then be enhanced by various government spending and tax setting rules. Subsequently, the efficiency of the enhanced models will be compared to the benchmark one. We will therefore establish whether the modelling of government spending and tax setting does increase the models ability to explain real data – whether the moments fit better than those of the benchmark model. This comparison will be done for multiple countries to check, whether the tax rate rule is the most efficient only in the case of Czech Republic or universally. |
| References |
| Galí, J., (1994) „Government size and macroeconomic stability.“ European Economic Review 38 (1994) 117-132 North-Holland
Marco Battaglini, M., Stephen, C., (2010) “Fiscal Policy over the Real Business Cycle: A Positive Theory.” National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14047 Aiyagari, R., A. Marcet, T. Sargent and J. Seppala, (2002), “Optimal Taxation without State-Contingent Debt,” Journal of Political Economy, 110, 1220-1254. Barro, R., (1979), “On the Determination of the Public Debt,” Journal of Political Economy, 87, 940-971. Bohn, H., (1990), “Tax Smoothing with Financial Instruments,” American Economic Review, 80(5), 1217-1230. Chari, V.V., L. Christiano and P. Kehoe, (1994), “Optimal Fiscal Policy in a Business Cycle Model,” Journal of Political Economy, 102(4), 617-652. Lane, P., (2003), “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD,” Journal of Public Economics, 87, 2661-2675. Talvi, E. and C. Vegh, (2005), “Tax Base Variability and Pro-cyclical Fiscal Policy,” Journal of Development Economics, 78, 156-190. |
| Preliminary scope of work |
| First part of the thesis reviews the literature on government spending models and tax setting processes. The goal is to find competing theories on the government spending and tax rate setting and to check whether they are useful for the case of Czech Republic – if their predictions are, at least partially, coherent with the real data on government spending.
In the second part, we will create a benchmark New Keynesian model for the Czech Republic. This model will be enhanced by the rules from first part. Consequently, we will compare the results of enhanced models with the results of the benchmark model. Finally, we will identify which government spending and tax setting rule combination is the most suitable one for the case of Czech Republic and to check its universality for other countries. 1. Introduction 2. Literature review on New Keynesian models, government spending modelling and taxation rules 3. Government spending and tax setting rules i. Rule 1 ii. Rule 2 ..etc 4. The benchmark NKE model i. Basic model ii. Calvo pricing iii. Inclusion of random rigidities iv. Calibration for Czech Republic v. Calibration for other countries 5. The enhanced NKE models with the government and the tax rules i. Rule 1 ii. Rule 2 ..etc 6. Models comparison i. Fitting the moments of data of Czech Republic ii. Fitting the moments of data of other countries 7. Discussion i. NKE model enhancement by government spending modelling and taxation rules ii. Universality of government spending and taxation 8. Conclusion |
| Preliminary scope of work in English |
| First part of the thesis reviews the literature on government spending models and tax setting processes. The goal is to find competing theories on the government spending and tax rate setting and to check whether they are useful for the case of Czech Republic – if their predictions are, at least partially, coherent with the real data on government spending.
In the second part, we will create a benchmark New Keynesian model for the Czech Republic. This model will be enhanced by the rules from first part. Consequently, we will compare the results of enhanced models with the results of the benchmark model. Finally, we will identify which government spending and tax setting rule combination is the most suitable one for the case of Czech Republic and to check its universality for other countries. 1. Introduction 2. Literature review on New Keynesian models, government spending modelling and taxation rules 3. Government spending and tax setting rules i. Rule 1 ii. Rule 2 ..etc 4. The benchmark NKE model i. Basic model ii. Calvo pricing iii. Inclusion of random rigidities iv. Calibration for Czech Republic v. Calibration for other countries 5. The enhanced NKE models with the government and the tax rules i. Rule 1 ii. Rule 2 ..etc 6. Models comparison i. Fitting the moments of data of Czech Republic ii. Fitting the moments of data of other countries 7. Discussion i. NKE model enhancement by government spending modelling and taxation rules ii. Universality of government spending and taxation 8. Conclusion |