Review of Economic Dynamics最新文献

Heathcote et al. (2010) conducted an empirical analysis of several dimensions of inequality in the United States over the years 1967-2006, using publicly-available survey data. This paper expands the analysis, and extends it to 2021. We find that since the early 2000s, the college wage premium has stopped growing, and the race wage gap has stalled. However, the gender wage gap has kept shrinking. Both individual- and household-level income inequality have continued to rise at the top, while the cyclical component of inequality dominates dynamics below the median. Inequality in consumption expenditures has remained remarkably stable over time. Income pooling within the family and redistribution by the government have enormous impacts on the dynamics of household-level inequality, with the role of the family diminishing and that of the government growing over time. In particular, largely due to generous government transfers, the COVID recession has been the first downturn in fifty years in which inequality in disposable income and consumption actually declined.

We explore the complementarity between a central bank and a financial stability Fund in stabilizing sovereign debt markets. The central bank pursuing its mandate can intervene with public sector purchasing programs, buying sovereign debt in the secondary market, provided that the debt is safe. The sovereign sells its debt to private lenders, through market auctions. Furthermore, it has access to a long-term state-contingent contract with a Fund: a country-specific debt-and-insurance contract that accounts for no-default and no-over-lending constraints. The Fund needs to guarantee gross-financial-needs and no-over-lending. We show that these constraints endogenously determine the ‘optimal debt maturity’ structure that minimizes the Required Fund Capacity (RFC) to make all sovereign debt safe. However, the Fund may have limited absorption capacity and fall short of its RFC. The central bank may be able to cover the difference, in which case there is perfect complementarity and the joint institutions act as an effective ‘lender of last resort’. We calibrate our model to the Italian economy and find that with a Fund contract its ‘optimal debt maturity’ is 2.9 years with an RFC of 90% of GDP, which is above what the European Stability Mechanism (ESM) could reasonably absorb, but may be feasible with an ECB Transmission Protection Instrument (TPI) intervention. In contrast, the average maturity of Italian sovereign debt has been circa 6.2 years, with a needed absorption capacity of around 105% of GDP, which may call for a maturity restructuring to ease the activation of TPI.

How should the U.S. confront the growing revenue needs driven by higher spending requirements? We investigate the mix of potential tax increases that generate a given revenue need at the minimum welfare cost and evaluate its macroeconomic impact. We do so in the context of a life-cycle growth model that captures key aspects of the earnings and wealth distributions and the non-linear shape of taxes and transfers in place. Our findings show that a proportional consumption tax combined with a lump-sum transfer to all households and a reduction in income tax progressivity consistently emerges as the best alternative to minimize welfare costs associated with a given increase in revenue. A 30% long-run increase in Federal tax revenue requires a consumption tax rate of 27.8%, a transfer of about 12% of mean household income to all households, and a reduction of top marginal income tax rates of more than 5 percentage points—output declines by 7.9% in the long run. While transfers are substantial, smaller transfers can accomplish most of the reduction in welfare costs. We find no role for wealth taxes in increasing revenues or minimizing welfare costs.

We reconsider the fiscal consequences of an aging population in Japan that were reported in Hansen and İmrohoroğlu (2016). That paper predicted that the net debt to GNP ratio would reach 250 percent in 2021, while the actual net debt to GNP ratio was roughly constant at about 120% from 2011 to 2019. Here we study the role played by higher tax revenues, lower spending, and lower interest rates than were assumed in the previous paper. Most importantly, we consider the role played by Japanese government bonds held by the Bank of Japan in enabling this period of debt stability. We conclude that the stable net debt to output ratio is predicted to be temporary and reach 250 percent before 2040.

This paper analyzes an economy in which agents face related problems and invest in parameter information that they share. The N-player game generates growth via statistical learning alone. The equilibrium growth rate rises with agents' risk aversion via precautionary saving. Research entails a free riding problem, but the scale effect dominates and growth rises with the number of agents.

We document a new fact: regional divergence, the rate at which rich states grow faster than poor states, explains most U.S. house price movements since 1939, including the post-2000 boom-bust-boom cycle. An industry-share instrument provides evidence the relationship is causal, implying the location of economic growth affects national house prices. We propose a model to learn why regional divergence and house prices are related. In the model, high interstate inequality raises rents on average because relative demand for living in a high-income state increases and housing supply in low-income states is elastic. Regional divergence leads to higher expected future interstate inequality, which implies higher expected future rents, and therefore, higher current house prices. The model accurately predicts rents since 1929, which are quite different than prices, as well as cross-sectional moments of prices, rents, construction, and migration.

In this paper, I investigate to what extent heterogeneity in both long-term care (LTC) needs and informal care support affects the savings decisions of the old. For this purpose, I develop and estimate a model of retired single individuals where agents are exposed to physical and/or cognitive health deterioration that triggers demand for LTC. To cope with LTC, agents differ in the amount of informal care provided by relatives and can purchase formal care at a market price to supplement this. I find that (i) LTC is relatively more important than bequest motives in explaining the lack of dissaving of individuals with limited access to informal care, (ii) concurrent cognitive and physical limitations account for most of the precautionary savings related to LTC, and (iii) Abstracting from informal care provision from relatives overestimates the welfare gains from expansions in government-provided means-tested care programs.

This paper uses a search-theoretic model to study conditions under which cryptocurrency is valued and under which it coexists with fiat money. In my model, a cryptocurrency economy is one in which private agents' decisions determine the stock of money and in which the marginal cost of producing money is increasing in the existing nominal stock. I show that the inflation rate of cryptocurrency must be zero in a stationary monetary equilibrium. This result is in sharp contrast to models with fiat money in which the stock of money is exogenously given. In fiat money economies, the inflation rate is determined by the rate of growth of the money stock. My result is also in sharp contrast with other types of private money economies, in which the inflation rate must necessarily be different from zero. In such private money economies, the cost of producing additional money does not depend on the existing nominal stock. Moreover, I show that cryptocurrency and fiat money can circulate at the same time and that the rates of return on these two assets may not be the same. Competition with cryptocurrency restricts the government's ability to over-issue fiat money and thereby might improve on pure fiat money equilibria without government commitment.

I study the diffusion of technology when the decision to search for productivity-enhancing technologies depends on the network of interactions between agents. Agents have the option to engage in costly learning from their first-degree connections. The more productive an agent's connections, the higher the gains from learning. Hence, the network affects the reservation productivity at which agents choose to learn and, therefore, affects aggregate productivity. I find that the denser the network, the higher total factor productivity and the lower inequality on average. This effect is due to less dispersed gains from learning across nodes when network density increases. Despite the increase in productivity, the share of agents that learn in equilibrium is not affected by network density.

A progressive tax schedule is usually justified in terms of redistribution and insurance. When the labor market is frictional and there is no intensive margin of labor supply, progressive taxation has been shown to reduce unemployment by lowering wages. However, a more progressive tax schedule discourages the individual's supply of labor and (precautionary) savings, thus potentially reducing capital accumulation and total production.

I examine the different effects of a progressive tax and transfer schedule on unemployment, labor income, an individual's labor supply, and savings. My modeling strategy follows Setty and Yedid-Levi (2020), who build on the workhorse model of Krusell et al. (2010), to which I add individual labor supply. I allow for ex ante heterogeneity in productivity, as well as in preferences, while the only idiosyncratic risk is the endogenous risk of unemployment. I compare my baseline model with a frictional labor market to one with a Walrasian labor market where the unemployment risk is exogenous.

Steady state comparisons, based on a utilitarian welfare criterion, show that a tax and transfer schedule with a positive degree of progressivity is optimal in both frameworks, and that the presence of labor market friction implies that the optimal level of progressivity is (slightly) higher.