Walter H. Fisher

Relative consumption, economic growth, and taxation

This paper studies the influence of consumption externalities in the Ramsey model. In contrast to the recent literature, a quite general specification of preferences is used and the concept of the effective intertemporal elasticity of substitution is introduced. We give conditions for the observational equivalence between economies with consumption externalities and externality-free economies. An additional key result is that there exist several types of instantaneous utility functions in which the decentralized solution coincides with the socially planned one in spite of the presence of consumption externalities. The conditions for optimal taxation are also derived.

Status Preference, Wealth and Dynamics in the Open Economy

Abstract The implications of status preference in a simple open economy model are investigated in this paper. The open economy is modeled as a continuum of identical representative agents who have preferences over consumption and status. In the paper status is identified as relative wealth, which takes the form of relative holdings international financial assets. A symmetric macroeconomic equilibrium is derived in which status is the source of transitional dynamics for domestic consumption and the current account balance. This result illustrates another way to combine transitional dynamics with interior equilibria in the small open economy Ramsey model with perfect capital mobility. We also show that status preference plays a critical role in influencing the open economy’s adjustment to government expenditure and world interest rate shocks.

World Interest Shocks, Capital, and the Current Account

Macroeconomic performance in many developing countries is influenced by international credit conditions. This paper considers a developing economy that faces an upward-sloping supply function of debt. It analyzes how a particular foreign shock, a world interest shock, influences such key macroeconomic variables as output, investment, the current account, and the terms of trade in both short-run and steady-state equilibrium. An intertemporal optimizing model is used to study these issues. This approach permits characterization of the intertemporal adjustment of the indebted economy, and shows that a world interest shock lowers overall economic welfare.

Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

We analyze the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on the long term fiscal liability. In particular, shifts in capital income taxes can lead to dynamic scoring effects through the evolution of foreign debt. We show that a combination of tax-cumexpenditure, or government expenditure alone can balance the long term government budget constraint. However, for certain combinations of parameter values, the capital income tax alone cannot balance the intertemporal budget.