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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society
Economic Policies with Endogenous Entry and Exit of Plants
Vol.29, No.2, June 2018, 28–47
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Yoonsoo Lee
(Sogang University)
Toshihiko Mukoyama
(Georgetown University)
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Abstract
We build a general equilibrium model of industry dynamics and conduct policy experiments. The model is designed to match the entry and exit patterns in the U.S. manufacturing sector. We analyze two policies. First, we consider imposing a firing tax. Both a constant firing tax and a countercyclical firingtaxincreasethevolatilityoftheentryrateandaggregateoutput. Thisfindingcontrastswiththestabilizationeffectsoffiringtaxesinpreviousmodelswith exogenous entry and exit. Second, we consider subsidies to entry costs. Countercyclical entry subsidies stabilize the entry rate and are effective in stabilizing the aggregate output over the business cycle.
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Keywords
plant-level dynamics, entry and exit, business cycles, firing tax, entry subsidy |
JEL classification codes
E23, E32, L11, L60 |
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