optimality and monetary equilibria in stationary overlapping generations models with long lived agents growth versus discounting abstract this paper studies the relationship between the existence and optimality of a monetary steady state and the nonoptimality of nonmonetary steady states we construct a sequence of stationary overlapping generations economies with longer and longer lived generations in which all agents maximize a discounted sum of utilities with a common discount rate under some assumptions the following result is established if the discount rate is greater less than the population growth rate then eventually every nonmonetary steady state is optimal nonoptimal and a monetary steady state does not exist exists and is optimal

bayesian inference for the mover stayer model in continuous time with an application to labour market transition data this paper presents bayesian inference procedures for the continuous time mover stayer model applied to labour market transition data collected in discrete time these methods allow us to derive the probability of embeddability of the discrete time modelling with the continuous time one a special emphasis is put on two alternative procedures namely the importance sampling algorithm and a new gibbs sampling algorithm transition intensities proportions of stayers and functions of these parameters are then estimated with the gibbs sampling algorithm for individual transition data coming from the french labour force surveys collected over the period 1986 2000 copyright 2003 john wiley sons ltd

dynamic efficiency in overlapping generations models with stochastic production abstract we consider an overlapping generations economy as in diamond amer econ rev 55 1965 1126 1150 with stochastic production we define two types of efficiency for feasible production consumption allocations using first and second degree stochastic dominance we obtain a complete characterization of inefficiency of type i in this model for each given sequence of strictly concave utility functions for all generations the existence of a competitive equilibrium is proved it is shown that each competitive allocation is short run efficient of type ii

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

optimal redistribution and monitoring of labor supply this paper extends the mirrlees 1971 model of optimal non linear income taxation with a monitoring technology that allows the government to verify labor supply at a positive but non infinite cost we analyze the joint determination of the non linear monitoring and tax schedules and the conditions under which these can be implemented monitoring of labor supply reduces the distortions created by income taxation and raises optimal marginal tax rates possibly above 100 the optimal intensity of monitoring increases with the marginal tax rate and the labor supply elasticity our simulations demonstrate that monitoring strongly alleviates the trade off between equity and efficiency welfare gains of monitoring are around 2 8 of total output the optimal intensity of monitoring follows a u shaped pattern similar to that of optimal marginal tax rates our paper can explain why large welfare states optimally rely on work dependent tax credits active labor market policies benefit sanctions and work bonuses in welfare programs

optimism pessimism and financial bubbles this paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank dependent expected utility this rdu assumption can be viewed as a transformation of probabilities depending on the pessimism optimism of the agent the results show that pessimism favors the existence of deterministic bubbles when optimism may promote the existence of stochastic bubbles moreover under pessimism the rdu assumption may generate multiple bubbly equilibria the rdu assumption also leads to new conditions ensuring the absence of pareto optimality of the competitive equilibrium without bubbles these conditions still govern the existence of bubbles

characterizing efficiency in stochastic overlapping generations models abstract we introduce uncertainty about production in diamond s olg model we compare any two feasible consumption production allocations using stochastic ordering and define two types of efficient allocations given initial capital stock for stationary allocations it is shown that a necessary and sufficient condition for efficiency type i is that e log r is greater or equal to log 1 n where r generates the stationary interest factors corresponding to this allocation n is the population growth rate a complete characterization of type ii efficient allocations is derived using the property of cyclical monotonicity between each generation s consumption allocation and the relevant interest rates

money competitive efficiency and intergenerational transactions abstract this paper shows that a three period overlapping generations model with an inverse v life cycle endowment structure can generally restore the first welfare theorem without imposing price characterization conditions even when walras s law fails a walrasian equilibrium may be optimal in a three period model depending on the endowment and generational structure if middle aged generations have sufficiently high income so that both the old and the young are net borrowers transactions are generation by generation bilaterally balanced thus ruling out potentially better but unenforceable contracts in equilibrium and ensuring competitive efficiency when there are imbalances fiat money which serves as a medium of intergenerational exchanges becomes valuable

stationary pareto optimality of stochastic asset equilibria with overlapping generations abstract a way of establishing the stationary pareto optimality of asset equilibria in stochastic settings with age diversity among the agents is suggested difficulties in obtaining such results arise because agents behavior is affected by random future state variables while pareto optimality defined in terms of expected lifetime utility of representative agents conditioned on their first period state involves redistributions of consumption among agents with different histories of realized states frobenius theorem is used to establish the existence of weights for which the so weighted sum of representative agents conditional expected utilities is maximized at the asset equilibrium allocation

no trade and uniqueness of steady states abstract in the present paper a stationary overlapping generations model with many commodities and many different consumers is considered the main result is that economies with endowments near no trade equilibria with constant prices have a unique balanced steady state and a unique golden rule steady state these results are obtained generically in utility functions and do not depend on whether the utility functions are of the discounted form or not

stochastic olg models market structure and optimality for a general class of pure exchange olg economies under uncertainty we provide a complete characterization of the efficency properties of competitive equilibria when markets are only sequentially complete and the criterion of efficency is conditional pareto optimality we also consider a particular case in which markets fail to be even sequentially complete and provide a characterization when the criterion of efficency is weakened to ex post pareto optimality

income shifting within a dual income tax system evidence from the finnish tax reform of 1993 dual income tax systems can suffer from income that shifts from progressively taxed labour income to capital income which is taxed at a lower flat rate this paper empirically examines the 1993 finnish dual income tax reform which radically reduced the marginal tax rates on capital income for some but not all taxpayers we measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform we find that the reform led to a small positive impact on overall taxable income but part of the positive response was probably offset by income shifting among the self employed

on the role of labor supply for the optimal size of social security abstract the paper studies the welfare effects of a social security system in a stylized overlapping generations economy with random production and capital accumulation different welfare concepts including long run optimality social optimality and time consistency are employed to determine the optimal size of the system when labor supply is exogenous a unique contribution level can be identified which is optimal according to all three concepts when labor supply is endogenous however this result generically fails to hold and the long run optimal solution is only constrained socially optimal while the time consistent policy may even lead to an inefficient equilibrium

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

changes in job instability and insecurity using monthly survey data this article provides evidence on changes in short term job instability and insecurity using the survey of income and program participation monthly measures from this data set are contrasted with annual measures from the survey of income and program participation and the panel study of income dynamics neither data set shows an increase in job turnover during the 1980s and 1990s we also examine indicators of increased insecurity these include the probability that a job ends involuntarily is followed by a spell of nonemployment or that the subsequent job has lower wages these indicators of insecurity also show no upward trend

search and taxation in a model of underground economic activities i introduction it is widely recognized that one major effect of taxation is to stimulate activities in the so called underground or shadow economy indeed the extent of underground activities even in the western countries is by no means negligible schneider and enste 2000 report that the size of the shadow economy as percent of gross domestic product gdp in the organisation for economic co operation and development oecd countries in 1996 ranged from 7 5 in switzerland to 28 5 in greece this existence of underground activity is a significant source for concern the possibility of evading taxes makes taxation less efficient by undermining the tax base this possibility may jeopardize long run scope for financing adequate public services furthermore it implies that official measures of for example income and unemployment which form the basis for policy will necessarily be biased the purpose of this article is to suggest a simple micro founded framework for studying the relationship between tax policy and underground economic activities a defining characteristic of the latter is that they are illegal 1 the traditional approach starting with the seminal contribution of allingham and sandmo 1972 characterizes tax evasion as an activity for which there is a risk of detection 2 this approach however does not particularly highlight that underground economic activity involves trade we argue that although underground economic activities and regular activities are similar and can coexist one effect of the illegal status of the former is to differentiate the amount of information that is available in the two market segments whereas information about trading opportunities in regular markets can be assumed to be perfect because underground activity is by definition furtive information about trading opportunities in this segment will be less than perfect traditionally search theory has been used to capture the notion of imperfect information in markets this has a natural interpretation in the current context though trading in the regular market can be regarded as frictionless an agent wishing to trade in the underground sector must devote some time and effort to locating trustworthy trading partners with whom he or she can trade illegally at no risk hence we model underground trade as the outcome of a standard bilateral search process where buyers and sellers devote some time to locating each other and implicitly verifying each others trustworthiness 3 this process individually rational when facing taxes is a socially wasteful activity because it subtracts effort from physical production the model identifies a natural link between participation in the underground economy and individual characteristics this is important for analysis of micro level data our model suggests that individuals with lower earnings capacity are more active in underground economic activities hence the model predicts a negative correlation between individual participation in the underground economy and for example hourly wage and education from the evidence that is available this seems consistent with the data 4 the current model can be used as a framework for future empirical work using micro data because it can fairly easily be extended to include other features such as unemployment and variation across industries in the technology available for underground production to make further predictions about individual involvement in underground activities the systematic relation between earnings capacity and participation in the underground economy is also relevant for policy design consider the implementation of a redistributive tax although the tax aims at improving the welfare of the individuals with low earnings capacity the same individuals can benefit from trading in a relatively large underground economy if the tax is only mildly enforced

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

majority voting and the welfare implications of tax avoidance abstract a benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an inefficiently high tax rate whenever the median voter has a below average income the present paper examines the role of tax avoidance for this welfare result for a right skewed distribution of taxed income we show that the political distortion from majority voting is increasing in the median voter s avoidance vice versa keeping the decisive voter s avoidance constant the political inefficiency is decreasing in the average level of avoidance in the economy

tariffs enforcement and customs evasion evidence from india we examine the effect of tariff policies on evasion of customs duties in the context of the trade reform in india of the 1990s by exploiting the variation in tariff rates across time and products we identify a robust positive elasticity of evasion with respect to tariffs a second contribution of the paper is to provide some evidence on the impact of enforcement while we cannot identify the direct impact of enforcement on evasion we can establish the extent to which enforcement related factors such as product characteristics that determine the ease of detection of evasion affect the evasion elasticity the results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs

optimal policies with an informal sector abstract this paper characterizes optimal policies in the presence of tax evasion and undocumented workers in equilibrium domestic workers may work exclusively in the formal sector or also in the informal sector surprisingly in equilibrium wages are always equalized between domestic and undocumented workers even if they do not work in the same sectors of the economy this is driven by the interaction of firm level decisions with optimal government policy we also find that enforcement may not always be decreasing in its cost and that governments will optimally enforce labour market segmentation if enforcement costs are not too high

a characterization of inefficiency in stochastic overlapping generations economies in this paper we provide a characterization of interim inefficiency in stochastic economies of overlapping generations under possibly sequentially incomplete markets with respect to the established body of results in the literature we remove the hypothesis of two period horizons by considering longer though uniformly bounded horizons for generations the characterization exploits a suitably modified cass criterion grounded on the long run behavior of compounded safe interest rates and independent of the length of horizons of generations thus the hypothesis of two period horizons is purely heuristic in establishing a criterion for inefficiency in addition for sequentially incomplete markets we adopt a suitable notion of unambiguous inefficiency separating the inefficient intertemporal allocation of resources from incomplete risk sharing unambiguous inefficiency reduces to inefficiency when markets are sequentially complete

on stationary 3 period overlapping generations models abstract consider a stationary overlapping generations economy where each consumer lives for three periods we establish by means of an example that it is possible that a stationary economy has no pareto optimal stationary competitive equilibrium this is to be contrasted with the 2 period overlapping generations model

asset prices debt constraints and inefficiency abstract we consider possibly non stationary economies with endogenous solvency constraints under uncertainty over an infinite horizon as in alvarez and jermann 2000 5 a sort of cass criterion cass 1972 10 completely characterizes constrained inefficiency under the hypothesis of uniform gains from risk sharing which is always satisfied in stationary economies when the autarchy is constrained inefficient uniform gains from risk sharing also guarantee a finite value of the intertemporal aggregate endowment at a constrained optimum hence no equilibrium exhibits a null interest rate in the long run finally constrained inefficiency occurs if and only if there exists a feasible redistribution producing a welfare improvement at all contingencies

labor market entry and earnings dynamics bayesian inference using mixtures of experts markov chain clustering summary this paper analyzes patterns in the earnings development of young labor market entrants over their life cycle we identify four distinctly different types of transition patterns between discrete earnings states in a large administrative dataset further we investigate the effects of labor market conditions at the time of entry on the probability of belonging to each transition type to estimate our statistical model we use a model based clustering approach the statistical challenge in our application comes from the difficulty in extending distance based clustering approaches to the problem of identifying groups of similar time series in a panel of discrete valued time series we use markov chain clustering which is an approach for clustering discrete valued time series obtained by observing a categorical variable with several states this method is based on finite mixtures of first order time homogeneous markov chain models in order to analyze group membership we present an extension to this approach by formulating a probabilistic model for the latent group indicators within the bayesian classification rule using a multinomial logit model copyright 2011 john wiley sons ltd

endogenous market incompleteness without market frictions dynamic suboptimality of competitive equilibrium in multiperiod overlapping generations economies abstract in this paper we show that within the set of stochastic three period lived olg economies with productive assets such as land markets are necessarily sequentially incomplete and agents in the model do not share risk optimally we start by characterizing perfect risk sharing and find that it requires state dependent consumption claims which depend only on the exogenous shock realizations we show then that the recursive competitive equilibrium of any overlapping generations economy with weakly more than three generations is not strongly stationary this then allows us to show directly that there are short run pareto improvements possible in terms of risk sharing and hence that the recursive competitive equilibrium is not pareto optimal we then show that a financial reform which eliminates the equity asset and replaces it with zero net supply insurance contracts arrow securities will implement to pareto optimal stochastic steady state known to exist in the model finally we also show via numerical simulations that a system of government taxes and transfers can lead to a pareto improvement over the competitive equilibrium in the model

a benchmark for comparative dynamics and determinacy in overlapping generations economies abstract do self fulfilling prophecies inherently produce indeterminate price paths after attention is restricted to nearly stationary price paths and economies the local uniqueness of equilibrium paths is established for almost all eternal without beginning or end overlapping generations economies with perfect foresight those results sharply contrast with leading examples of indeterminacy such divergent results are possible since each leading example actually violates perfect foresight all but a finite number of their equilibrium paths embody either unanticipated revisions of expectations or extrinsic uncertainty sunspots

existence of competitive equilibrium under financial constraints and increasing returns abstract this paper studies a factor cost in advance model with increasing returns in production in the model both partial equilibrium and general equilibrium may exist since working capital of firms limit their input demand we provide a sufficient condition for the existence of partial equilibrium of a firm operating on a non convex choice set furthermore we establish the existence and uniqueness of competitive equilibrium in the special case of logarithmic utility

on the existence of optimal stationary equilibria with a fixed supply of fiat money i the case of a single consumer this paper generalizes samuelson s well known analysis concerning the use of fiat or outside money to support pareto optimal allocations in an overlapping generations framework while maintaining an elementary demographic structure butexpanding the list of available commodities in each period we establish the following result if there is a fixed supply of fiat money and individuals are also permitted to issue bonds or inside money then there always exists at least one stationary equilibrium yielding a pareto optimal allocation

a note on the existence of monetary equilibria in overlapping generations models with storage abstract wallace s result for an og model with nonstochastic storage is extended by provision of a necessary and sufficient condition for fiat currency to be valued in equilibrium in an og model with stochastic storage it is shown that a monetary equilibrium exists if and only if the real rate of return on currency that would obtain in the stationary monetary equilibrium exceeds the risk free real rate of return that obtains in the nonmonetary equilibrium

dominant root characterization of pareto optimality and the existence of optimal equilibria in stochastic overlapping generations models abstract we characterize pareto optimality of interior stationary allocations in single good overlapping generations models with stochastic aggregate shocks and heterogeneous but recurring generations an interior stationary allocation is pareto optimal if and only if it is an equilibrium allocation and the associated contingent claims price matrix has a dominant root less than or equal to unity we then use this characterization to show that there always exists an optimal equilibrium with or without valued fiat money

income shifting as income creation abstract income shifting arises as one of the key questions when thinking about the design of a tax system as a whole we study a simple economy involving a benevolent policy maker and a population of agents differing in terms of productivities labor supply elasticities and shifting costs paying special attention to the cost structure of income shifting we highlight that when people who shift easily along the extensive margin are also more elastic in labor supply giving them a lower tax rate is a good thing and the government should not necessarily combat income shifting this mechanism may be compared to third degree price discrimination in industrial organization and works as a form of endogenous tagging we explore this possibility numerically before showing that our results derived for a policy maker optimally adjusting two linear tax instruments carry over when two fully non linear taxes are potentially available

social security and risk sharing abstract in this paper we identify conditions under which the introduction of a pay as you go social security system is ex ante pareto improving in a stochastic olg economy with capital accumulation and land we argue that these conditions are consistent with realistic specifications of the parameters of the economy in our model financial markets are complete and competitive equilibria interim pareto efficient therefore a welfare improvement can only be obtained if agents welfare is evaluated ex ante and arises from an improvement in intergenerational risk sharing we also examine the optimal size of a given social security system as well as its optimal reform

do taxes matter lessons from the 1980 s the response of the economy to two major although in important respects offsetting tax reforms has been much smaller than ardent supply side revolutionaries expected thus suggesting that a reassessment of the grounds for revolt is in order this paper offers such a reassessment by first discussing how the evidence from the tax reforms of 1981 and 1986 reflects on our understanding of the response to taxation with particular reference to savings and capital gains realizations i then reconstruct a 1992 view about how taxes affect behavior a unifying theme is that the tax system does much more than alter the relative prices of real variables it also provides incentives to misreport income restructure financial claims time transactions change the legal form of organization and so on for this reason observed low tax elasticities of real variables may be due to either low elasticities of substitution or the fact that tax policy changes opportunity sets in complex ways disentangling these explanations requires an emphasis on the transaction based nature of the tax system and the administration and enforcement of tax laws this abstract was borrowed from another version of this item

interpreting panel data on job tenure tenure responses in the panel study of income dynamics psid and the national longitudinal surveys are often inconsistent with calendar time these inconsistencies pose special problems in the psid because job changes cannot be identified directly so researchers must infer them from error ridden tenure data we use alternative rules for partitioning psid data into jobs and then estimate several wage and mobility models to assess the sensitivity of parameter estimates to the partitioning method we also assess the importance of replacing raw tenure data with imputed measures that are internally consistent

stochastic inflation and government provision of indexed bonds abstract this paper examines the consequences of using indexed bonds as one of the government financing instruments along with money and taxes it is shown that open market operations between money and indexed bonds do not matter in a real sense despite their different risk characteristics increasing the share of indexed bonds in the government portfolio increases the volatility and the conditional mean of real rates of return on money when provided by means other than open market operations indexed bonds can affect the allocation of resources but these reallocations cannot be pareto improving

optimality of barter steady states in the present paper the issue of the existence of optimal barter steady states is addressed in a stationary overlapping generations model with many commodities and many different long lived consumers a general characterization of the individual endowments leading to an optimal barter steady state is obtained the result which is a generalization of benveniste and cass journal of political economy 1986 94 402 407 is obtained as a corollary of an unpublished result of cass 1982 unpublished manuscript

has job stability declined yet new evidence for the 1990 s we update the evidence on changes in job stability through the mid 1990s using recently released current population survey data for 1995 that parallel earlier job tenure supplements in the aggregate job stability declined modestly in the first half of the 1990s moreover the relatively small aggregate changes mask rather sharp declines in stability for workers with more than a few years of tenure nonetheless the data available to this point do not support the conclusion that the downward shift in job stability for more tenured workers and the more modest decline in aggregate job stability reflect long term trends

on stationary overlapping generations models abstract consider a stationary consumption loan economy with fixed amount of fiat money we show that although the economy is stationary if the number of goods and the number of types of consumers are larger than one there might be no pareto optimal stationary competitive equilibrium

redistribution when avoidance behavior is heterogeneous abstract the optimal income taxation framework is extended to account for heterogeneity in avoidance behavior the optimal tax formulae are shown to be simply and intuitively modified to reflect the value of taxable income as an indicator of the need for transfers at a given skill level this effect is in addition to any effect implied by just considering additional margins of response to taxes alternative sources of heterogeneity and their likely consequences are discussed when the choice of administration is added to the model it is demonstrated that the optimal tax system may include some seemingly wasteful avoidance schemes even if they could be eliminated without any cost when an avoidance scheme is more heavily used by the needy it may provide additional redistribution without affecting standard incentive constraints

conditional pareto optimality of stationary equilibrium in a stochastic overlapping generations model abstract in this paper i describe and analyze a pure exchange overlapping generations model in which endowments and the dividends of an asset in fixed supply are exogeneous and random they follow a finite state markov process it is shown that no stationary allocation is pareto superior to any stationary equilibrium allocation where pareto superiority is defined in terms of the conditional expected utilities agents maximize in the competitive setting the main contribution of the paper is the optimality proof

markov rational expectations equilibria in an overlapping generations model abstract in this paper we analyze rational expectations equilibrium paths in a stochastic overlapping generations model the work presented here builds on results of s e spear j econ theory 35 1985 251 275 where is is shown that in a model with multiple goods and time non separable preferences a stochastic steady state equilibrium will generically fail to exist a stochastic steady state is defined as an equilibrium in which the stochastic process of endogenously determined variables is measure isomorphic to the exogenous process driving the model in this paper we establish the existence of non steady state equilibria and provide a characterization of their stochastic properties

income tax evasion labour supply and the equity efficiency tradeoff abstract this paper is an attempt to incorporate tax evasion into the analysis of optimum income taxation a model of variable labour supply with tax evasion is used to derive supply functions for labour in regular and irregular markets given taxpayer behaviour the government chooses tax rates penalties and the probability of detection to maximize a utilitarian social welfare function the results consist in the derivation of a formula for the optimum marginal tax rate and a characterization of the factors determining the choice between the penalty rate and the probability of detection as instruments for the control of tax evasion

fixing the leak in okun s bucket optimal tax progressivity when avoidance can be controlled this paper examines optimal income tax progressivity when avoidance responses to taxation are important and can be controlled at some cost by the government a simple example shows that ignoring the fact that avoidance can be controlled that the leak in okun s bucket can be fixed can lead to misleading implications about the optimal degree of tax rate progressivity the paper then generalizes the standard modei of the optimal linear income tax to include taxpayer avoidance behavior and the ability of government to control the avoidance but not the labor supply response to higher marginal tax ites the discussion suggests that if the tax burden is to be made more progressive base broadening and increased enforcement ought to be considered as alternatives or complements to increasing tax rates for high income individuals

tax bases tax rates and the elasticity of reported income abstract tax reforms usually change both tax rates and tax bases using a panel of income tax returns spanning the two major u s tax reforms of the 1980s and a number of smaller tax law changes i find that the elasticity of income reported on personal income tax returns depends on the available deductions this highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers one implication is that base broadening reduces the marginal efficiency cost of taxation the results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different their tax base is narrower the point estimates indicate that the tax reform act of 1986 reduced the marginal cost of collecting a dollar of tax revenue with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction as a by product the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income

optimal steady state in stationary consumption loan type models abstract we consider a stationary overlapping generations economy and prove that an optimal steady state exists we show that if a government intervention is needed in order to implement the optimal steady state as a competitive equilibrium it is necessary only in a finite number of periods if the interest rate associated with the optimal steady state equals the population rate of growth some outside money may be required in order to make the competitive equilibrium follow the optimal steady state we show that our existence result enables us to construct pareto optimal competitive equilibria in some important cases

asset shortages liquidity and speculative bubbles abstract we study the effect of asset shortages on liquidity in economies with limited enforcement of debt contracts we establish that under a suitable assumption in terms of gains from trade liquidity does not dry up and trading volumes do not disappear as credit conditions worsen the equilibrium outcome becomes arbitrarily close to a purely speculative equilibrium and bubbles occur in the limit the result applies to incomplete markets and more generally to equilibria where collateral constraints interfere with the additivity of the payoff pricing functional

interfirm mobility wages and the returns to seniority and experience in the united states in this paper we expand on the seminal work of altonji and shakotko 1987 and topel 1991 and reinvestigate the returns to seniority in the united states we begin with the same wage equation as in previous studies we extend the model of hyslop 1999 and explicitly model the participation employment and inter firm mobility decisions which in turn define the individual s experience and seniority we introduce into the wage equation a summary of the workers entire career path the three equation system is estimated simultaneously using data from the panel study of income dynamics psid we find that for each of the three education groups studied the returns to seniority are larger than those previously found in the literature

informational diversity over time and the optimality of monetary equilibria abstract the temporal realizations of a random state variable in an overlapping generations model create an informational diversity between members of different generations and require a reexamination of the optimality that competitive equilibria might display in such an environment using an optimality criterion that reflects this informational diversity we prove the optimality of competitive equilibrium in a model with a fixed stock of fiat money a single spot market and good endowments that follow a markov process the need for an optimality criterion that incorporates informational diversity is further motivated by studying the same model with the operation of complete contingent commodities markets

social security and demographic shocks an overlapping generations model of social security with shocks to the productivity of labor and capital and demographic shocks is studied we focus attention on stationary long run allocations an allocation is interim optimal if there does not exist another feasible allocation that improves the expected welfare of all generations computed conditionally on the state of the world when they are born we characterize the set of interim optimal allocations and study the equilibria associated with various institutional forms of social security from the point of view of this optimality criterion we obtain the analogs of the two traditional welfare theorems of microeconomic theory assume that there exists a financial asset in fixed quantity which supports some non null intergenerational transfers then the rational expectations equilibrium allocation of this economy is interim optimal conversely any stationary interim optimal allocation can be supported by such an equilibrium with adequate lump sum transfers

rational expectations in the overlapping generations model abstract this paper reports results on the character of the rational expectations equilibria of a stochastic overlapping generations model with heterogenous markets the model considered is a stationary overlapping generations model in which the endowments of young agents are subject to i i d random shocks the main result shown is that if there are l 1 commodities traded in every period then for most preferences the rational expectations equilibrium stochastic process of prices and allocations necessarily exhibits serial correlation this is in marked contrast to the one commodity model in which there always exists an equilibrium which is measure isomorphic to the endowment process

tax bunching income shifting and self employment abstract this paper proposes a dynamic extension to saez 2010 bunching formula that allows us to distinguish bunching based on real responses and income shifting we provide direct evidence of income shifting and pronounced bunching in taxable income for the danish self employed if income shifting was neglected in this case we would estimate a taxable income elasticity in the range of 0 43 0 53 and conclude that taxable incomes were highly sensitive to changes in marginal tax rates we show however that more than half of the bunching in taxable income is driven by intertemporal income shifting implying a structural elasticity of 0 14 0 20

the elasticity of taxable income in the presence of deduction possibilities several recent studies show that the elasticity of taxable income eti is not a sufficient statistic for the welfare costs of taxation due to factors such as tax base shifting this paper provides an additional argument demonstrating the non sufficiency of the eti namely tax deductions building on a theoretical framework which incorporates deductions in a standard optimal tax model we show that the eti is not sufficient for welfare analysis if i deductions generate externalities and if ii deductions are responsive to tax rate changes while the first condition should arguably hold true for the majority of tax deductions we provide an empirical examination of the second condition relying on rich german panel data from administrative tax records we exploit several tax reforms that were implemented in germany between 2001 and 2008 our main estimates indicate an overall eti between 0 54 and 0 68 and an elasticity of deductions with respect to the net of tax rate of about 0 9 these results suggest that the eti is not sufficient to calculate the welfare cost of taxation

changing consequences of job separation in the united states using the panel study of income dynamics the author examines the consequences of job loss between the periods 1976 81 and 1986 91 he finds stability in the overall incidence of job separation but a statistically significant increase in the incidence of involuntary job loss relative to quits for older workers he also finds that the consequences of involuntary job loss worsened the reemployment rate of workers who experienced involuntary job loss dropped from 67 in 1976 81 to 62 in 1986 91 and among those who found new jobs the odds of receiving a large wage cut rose from 9 in 1976 81 to 17 in 1986 91

existence and optimality of currency equilibrium in stochastic overlapping generations models the pure endowment case abstract we consider a pure exchange stochastic overlapping generations economy sufficient conditions for the existence of a monetary equilibrium and a characterization of optimality are provided it is shown that in a monetary equilibrium currency provides partial insurance and that the equilibrium allocation is optimal it is also shown that if an allocation is optimal the contingent claim prices associated with it are such that in an average sense the present value of the social endowment is bounded

stationary equilibria with incomplete markets and overlapping generations recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account equilibrium prices and allocations are indeterminate the equilibria in such models are also generically constrained suboptimal a central planner can typically reallocate assets in such a way as to pareto dominate the competitive equilibrium in this paper the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money they show that when outside money has value in equilibrium the stationary equilibrium prices and allocations are both locally isolated and constrained optimal copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

pricing optimal distributions to overlapping generations a corollary to efficiency pricing this paper will exploit the structural similarity of the two period overlapping generations model and the dynamic capital accumulation model to provide a pricing characterization of pareto optimal distributions with some very simple structural interpretations the techniques which were developed to characterize efficient capital accumulation apply directly to the overlapping generations model of the most general form where generations consist of heterogenous consumer types of varying lifespans