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Marginal Tax Rates and Income Inequality in a Life-Cycle Model

David Altig; Charles T. Carlstrom
American Economic Review 1999 89(5), 1197-1215
In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equilibrium framework. We find that distortions from marginal tax rate changes of the sort implied by the Tax Reform Act of 1986 have sizable effects on income inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actually occurred between 1984 and 1989.

Taylor Rules in a Model that Satisfies the Natural-Rate Hypothesis

Charles T. Carlstrom; Timothy S. Fuerst
American Economic Review 2002 92(2), 79-84
FEDERAL RESERVE BANK OF CLEVELANDWorking papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Working papers are now available electronically through the Cleveland Fed’s site on the World Wide

Agency costs, net worth, and business fluctuations: A

Charles T. Carlstrom; Timothy S. Fuerst
American Economic Review 1997
This paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business-cycle dynamics. A principal conclusion is that the agency-cost model replicates the empirical fact that output growth displays positive autocorrelation at short horizons. This hump-shaped output behavior arises because households delay their investment decisions until agency costs are at their lowest--a point in time several periods after the initial shock.