American Economic Journal: Economic Policy 

About: American Economic Journal: Economic Policy is an academic journal published by American Economic Association. The journal publishes majorly in the area(s): Welfare & Population. It has an ISSN identifier of 1945-774X. Over the lifetime, 565 publications have been published receiving 38649 citations. The journal is also known as: Economic policy & AEJ policy.

Measuring the Output Responses to Fiscal Policy

Abstract: A key issue in current research and policy is the size of fiscal multipliers when the economy is in recession. We provide three insights. First, using regime-switching models, we find large differences in the size of spending multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions. Second, we estimate multipliers for more disaggregate spending variables which behave differently relative to aggregate fiscal policy shocks, with military spending having the largest multiplier. Third, we show that controlling for predictable components of fiscal shocks tends to increase the size of the multipliers in recessions.

Do Taxpayers Bunch at Kink Points

Abstract: This paper uses individual tax returns micro data from 1960 to 1997 to analyze whether taxpayers bunch at the kink points of the U.S. income tax schedule generated by jumps in marginal tax rates. Clear evidence of bunching is found only at the threshold of the rst tax bracket where tax liability starts. Evidence for other kink points is weak or null. The large jumps in marginal tax rates created by the Earned Income Tax Credit generate no bunching for wage earners recipients but substantial bunching for self-employed recipients. In the standard micro-economic model, the amount of bunching should be proportional to the size of the compensated elasticity of earnings with respect to tax rates. We introduce uncertainty and rigidities in labor supply choices to account for the empirical results. Numerical simulations show that, even in those cases, behavioral elasticities consistent with the empirical results are small.

Adaptation to Climate Change: Evidence from US Agriculture†

Abstract: Understanding the potential impacts of climate change on economic outcomes requires knowing how agents might adapt to a changing climate. We exploit large variation in recent temperature and precipitation trends to identify adaptation to climate change in US agriculture, and use this information to generate new estimates of the potential impact of future climate change on agricultural outcomes. Longer run adaptations appear to have mitigated less than half—and more likely none—of the large negative short-run impacts of extreme heat on productivity. Limited recent adaptation implies substantial losses under future climate change in the absence of countervailing investments. (JEL Q11, Q15, Q51, Q54)

No Child Left Behind: Subsidized Child Care and Children's Long-Run Outcomes

Abstract: Many developed countries are currently considering a move toward subsidized, widely accessible child care or preschool. However, studies on how large- scale provision of child care affects child development are scarce, and focused on short-run outcomes. We analyze a large-scale expansion of subsidized child care in Norway, addressing the impact on children's long-run outcomes. Our precise and robust difference-in-differences estimates show that subsidized child care had strong positive effects on children 's educational attainment and labor market participation, and also reduced welfare dependency. Subsample analyses indicate that girls and children with loweducated mothers benefit the most from child care. {JEL J13, J16) increased demand for child care associated with the rise of maternal employment is attracting the attention of policy makers and researchers alike. Indeed, access to child care has gone up in many developed countries over the last years (Organisation for Economic Cooperation and Development (OECD) 2004), and there is a heated debate about a move towards subsidized, widely accessible child care or preschool, as offered in the Scandinavian countries. For example, the European Union's Presidency formulated in 2002 as a policy goal "to provide childcare by 2010 to at least 90 percent of children between 3 years old and the mandatory school age and at least 33 percent of children under 3 years of age" (European Union (EU) 2002, 13). Further, Quebec recently introduced highly subsidized child care, and other Canadian provinces are considering similar policies. In the US, the so-called "Zero to Five Plan" of US President Obama aims at making states move towards voluntary universal preschool. At the same time, studies on how large-scale provision of child care affect child development are scarce, focused on short-run outcomes, and the findings are mixed.

Trade and Investment under Policy Uncertainty: Theory and Firm Evidence

Abstract: In a dynamic model with sunk export costs, a firm’s export investment is lower under trade policy uncertainty, and credible preferential trade agreements (PTAs) increase trade even if current tariffs are low. Exploring Portugal’s accession to the European Community as a policy uncertainty shock we find that the trade reform accounted for a large fraction of Portuguese exporting firms’ entry and sales; the accession removed uncertainty about future EC trade policies; and this uncertainty channel accounted for a large fraction of the predicted growth. Our approach can be applied to other PTAs and sources of policy uncertainty. (JEL D22, F12, F14, F15, G31, L11) irms face considerable uncertainty about future conditions, which can arise from purely economic shocks—e.g., to productivity or tastes—or from policy shocks—e.g., monetary or fiscal reforms. The role of future conditions is particularly important when firms must decide on costly irreversible investments. We examine the impact of policy uncertainty on a firm’s decision to invest and export to new markets, which is an interesting setting for several reasons. First, global integration has considerably increased firms’ exposure to foreign policy uncertainty. Second, while most trade analysis assumes policy is deterministic, we argue that it can be quite uncertain. Trade policy shocks are not frequent but when they happen they can be large and persistent, as witnessed in the 1930’s trade war.