This study measures spending power inequality within age cohorts and estimates fiscal progressivity via lifetime net tax rates. We find, first, that inequality in income and especially wealth dramatically overstates inequality in spending power. Second, inequality in current spending power differs from that in lifetime spending power because of credit constraints, in-kind government benefits, and other factors. Third, the US fiscal system is highly progressive once cohorts are old enough to have highly dispersed human wealth. Fourth, households’ rankings based on current income can differ substantially from their rankings based on lifetime resources. Fifth, current-year net tax rates substantially understate fiscal progressivity.

For a large number of OECD countries we estimate the cross-country spillover effects of government purchases on output. Following the methodology in Auerbach and Gorodnichenko (2012a, b), we allow these multipliers to vary smoothly according to the state of the economy and use real-time forecast data to purge policy innovations of their predictable components. Our findings suggest that cross-country spillovers have an important impact. The findings also confirm those of our earlier papers--namely that fiscal shocks have a larger impact when the affected country is in recession.

Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. We show that even were this the case, there remains a powerful argument for large-scale open market operations as a fiscal policy tool. As we also demonstrate, however, this same reasoning implies that open-market operations will be beneficial for stabilization as well, even when the economy is expected to remain mired in a liquidity trap for some time. Thus, the microeconomic fiscal benefits of open-market operations in a liquidity trap go hand in hand with standard macroeconomic objectives. Motivated by Japan’s recent economic experience, we use a dynamic general-equilibrium model to assess the welfare impact of open-market operations for an economy in Japan’s predicament. We argue Japan can achieve a substantial welfare improvement through large open-market purchases of domestic government debt.

Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. In an earlier paper, we showed that this reasoning does not hold, that open-market operations can provide substantial macroeconomic benefits and facilitate the use of powerful fiscal policy tools even in a liquidity trap. In this paper, we consider an alternative approach that has been suggested for use in a liquidity trap, a scheduled increase in consumption tax rates. We find that such a policy could, indeed, increase short-run consumption, but would be less effective at increasing welfare or accelerating a country's exit from a liquidity trap. Though a variant of this tax policy might induce exit from a liquidity trap, the impact of welfare is negative in this case as well. We also argue that this alternative tax-rate-based approach is subject to more severe credibility problems than the monetary policy approach explored in our original paper.

This paper reconsiders the impact of immigrants over time in the US by using the technique of generational accounting introduced by Auerbach et al. Generational accounting considers not only the net contribution of immigrants to balance but also the size of this impact in relation to the overall balance. It further compares changes in immigration policy to other policies. From the analysis three conclusions were formulated. 1) Whether immigration contributes to or helps alleviate stress depends on the future generations. If the entire imbalance currently estimated for the US is placed on future generations then the presence of new immigrants reduces the burden of the natives. 2) Fiscal gain from immigration is reduced when a policy of fiscal responsibility is followed. The gain is dependent on the extent to which government purchases rise with the immigrant population. 3) The impact of immigration on balance is extremely small in relation to the size of the overall imbalance itself. Thus immigration should not be perceived as a major source of the existing imbalance or as a potential solution to it.

We exploit a panel of city-level data with rich demographic information to estimate the distributional effects of Department of Defense spending and its effects on a range of social outcomes. The income and employment generated by defence spending accrue predominantly to households without a bachelor's degree. These households as well as Black and Hispanic households tend to disproportionately benefit from this spending. Defence spending also promotes a range of beneficial social outcomes that are often targeted by government programs, including reductions in poverty, divorce rates, disability rates, and mortality rates, as well as increases in homeownership rates, health insurance rates, and occupational prestige. We compare the effects of defence spending with the effects of general demand shocks and explore reasons for the differential effects of the shocks.

have provided us with a wealth of information about the newest products of U.S. Ph.D. programs. Among the notable facts are the continuing decline in the share of U.S. natives among these new graduates, their continued success at landing academic and other professional jobs, and their high level of professional fulfillment, in terms of both job satisfaction and outcomes measuring up to expectations. There are also a variety of intriguing results. For example, (from their table 5) students completing the top Ph.D. programs were younger, less likely to be married, and more likely to be foreign than those in the overall sample. Perhaps most disturbing, (from their table 6) median starting full-time academic salaries were lowest in public economics, a result that cannot be accounted for in salary regressions with other covariates. This clearly is an inversion of the appropriate ranking. In my comments, I will focus on two selected aspects of Ph.D. programs and the Ph.D. job market.

This paper uses a new, large-scale, dynamic life-cycle simulation model to compare the welfare and macroeconomic effects of transitions to five fundamental alternatives to the U.S. federal income tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational heterogeneity and a detailed specification of alternative tax systems. Simulation results project significant long-run increases in output for some reforms. For other reforms, namely those that seek to insulate the poor and initial older generations from adverse welfare changes, long-run output gains are modest.

Editor's Note The Journal of Economic Literature (JEL) regularly reviews books of interest to the economics profession. The Economic Report of the President (ERP) falls under that purview. I have asked a handful of very prominent economists to review the 2006 ERP. Reviewers were chosen to reflect expertise on what I guessed would be key issues. The ERP in principle should provide an accurate assessment of the consensus professional views of economists on any given issue, based on the research to date. Reviewers were asked to evaluate whether the discussion in the ERP in fact accurately summarizes what we as economists know? Reviewers were given free rein over what material they would review in the ERP but were urged to focus on their areas of particular expertise. In the reviews that follow, Martin Feldstein reviews the overview chapter as well as topics relating to macroeconomics. Alan Auerbach reviews the ERP's discussion of tax-related issues, while Ken Rogoff reviews the ERP's discussion of international economic topics. Rebecca Blank writes on labor market issues in the ERP, and Michael Katz reviews the ERP's discussion of health care issues. Many thanks to the reviewers for the quick turnaround.