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Merih Uctum

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This manuscript examines how the dynamic macroeconomic effects from shocks to taxes and inflation differ between the United States and Argentina. On the fiscal side, wages, private capital, and consumption tax cuts have long-run revenue growth effects (in both countries) that mitigate initial tax receipt losses. These growth effects, however, are larger in Argentina - a country where both the consumption tax rate and sensitivity to wage changes are higher. Specifically, Chapter 2 finds that growth from a U.S. capital tax cut pays for roughly 60% of the initial static loss, whereas the corresponding effect in Argentina is 80%. On the monetary side, multiple regimes are then considered with money in the utility function to determine optimal scenarios, holding tax revenues constant. Chapter 3 concludes that distortions from taxes on wages, private capital, and inflation outweigh the efficiency losses from a consumption tax, and as such, an economy whose government places more emphasis on consumption to generate tax receipts achieves higher utility. The tax frameworks introduced in Chapters 2 and 3 build from the neoclassical Ramsey growth models. Inflation's role as a source of revenue via seigniorage in Chapter 3 is extended to the Argentine fixed income market in Chapter 4. Using proprietary pricing data and a structural vector autoregression framework, Chapter 4 finds that inflation as a predictor of the probability of default in Argentina is much larger than the government claims it to be; despite non-investment-grade government bonds, Argentina's fixed income market actually became more attractive during the U.S. mortgage crisis; and global risk aversion has predictive power in explaining sovereign spreads.

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