labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

2018 klein lecture individual and aggregate labor supply in heterogeneous agent economies with intensive and extensive margins we study business cycle fluctuations in heterogeneous agent general equilibrium models featuring intensive and extensive margins of labor supply a nonlinear mapping from time devoted to work to labor services generates operative extensive and intensive margins our model captures the salient features of the empirical distribution of hours worked including how individuals transit within this distribution we study how various specifications influence labor supply responses to aggregate technology shocks and find that abstracting from intensive margin adjustment can have large effects on the volatility of aggregate hours even if fluctuations along the intensive margin are small

housing market heterogeneity in a monetary union this paper studies the implications of cross country housing market heterogeneity in a monetary union for both shock transmission and welfare i develop a two country new keynesian general equilibrium model with housing and collateral constraints to explore this issue the conventional wisdom is that welfare would be higher in a monetary union if mortgage markets were homogeneous this paper shows instead that welfare is higher only when homogenization does not result in higher aggregate volatility because of financial accelerator effects or does not redistribute too much wealth from borrowers to savers

are rich people smarter abstract we formulate a general stochastic process of wealth accumulation by capital investment and analyze the conditions required to ensure convergence to the empirically observed pareto wealth distribution while homogeneous investment talent leads to the pareto distribution under very general conditions even a mild degree of differential investment talent results in a non pareto wealth distribution this finding suggests that chance rather than differential investment talent is the dominant factor in the process of wealth accumulation by financial investment our findings conform with market efficiency and may have implications regarding the origins the economic significance and the social desirability of wealth inequality at the high wealth range

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

secular changes in wealth inequality and inheritance data suggest that the distribution of wealth among households in the usa and uk has become more equal over the last century though at least for the usa the pattern may have reversed recently this paper shows that a model in which all households save for life cycle reasons and some for dynastic purposes as well offers a possible or partial explanation the model predicts rising cross sectional equality of wealth when longevity increases there may also be implications about very recent changes expansion of social security programmes and government deficits can lead toward more wealth inequality slower growth may do the same

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

fiscal policy effects in a heterogeneous agent olg economy with an aging population this paper incorporates the aging population projected by the u s social security administration to a heterogeneous agent olg model with idiosyncratic wage shocks and analyzes its effects on individual households the government budget and the overall economy the fiscal gap caused by the demographic change is 2 92 of gdp under the ssa s intermediate projection the effect of the aging population is large by itself and depends significantly on how the government finances the cost of the demographic change there is a strong trade off between efficiency and equity and this paper quantitatively assesses the pros and cons of stylized fiscal reform plans

state modernization devolution and economic governance an introduction and guide to debate jones m d goodwin m a jones r 2005 state modernization devolution and economic governance an introduction and guide to debate regional studies 39 4 397 403

u s inequality debt constraints or incomplete asset markets abstract to examine the role of debt constraints and incomplete asset markets lack of insurance markets in explaining u s inequality we run horse races between competing models for a widely used model we decompose inequality into its fundamental driving forces the underlying source of inequality in all models is uninsurable idiosyncratic risk both debt constraints and incomplete asset markets are needed to account for inequality but asset market incompleteness is the key friction it better accounts for the concentration and dispersion of wealth and is the most costly friction in terms of welfare tight debt constraints are important for explaining the lower tail of the wealth distribution

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

evaluating environmental programs the perspective of modern evaluation research large scale environmental programs generally commit substantial societal resources making the evaluation of their actual effects on the relevant outcomes imperative as the example of the subsidization of energy saving appliances illustrates much of the applied environmental economics literature has yet to confront the problem of proper attribution of effects to underlying causes on a convincing methodological basis this paper argues that recent results in the econometrics and statistics literature on program evaluation could be utilized to advance considerably in this context in particular the construction of a credible counterfactual situation is at the heart of the formal statistical evaluation problem even when controlled experiments are not a viable option appropriate approaches might succeed where traditional empirical strategies fail to uncover the effects of environmental interventions

an empirical analysis of joint residential electricity efficiency gains within and across end uses implications for demand side management to better understand the observed performance of demand side approaches on residential electricity use we develop and apply a mixed regression model of electricity consumption that includes marginal joint technical change for multiple residential electricity end uses air conditioning appliances devices and electric vehicles results indicate that the relative technical state of a home can significantly influence the performance of demand side interventions particularly the presence of a programmable thermostat within air conditioning we generally find that enough consistent technical improvement is needed to realize energy savings which could be due to engineering building performance or a declining marginal rebound effect as householders become thermally comfortable results indicate that homeowners do not leverage efficiency gains for appliance services but demonstrate mixed results when considering the expansion of electricity services householders may rebound into device loads albeit such results are not statistically significant however results indicate that householders do not leverage efficiency gains for electric vehicles these results demonstrate that the net effect of technological change in households is relative to a home s baseline technical efficiency and the degree to which homeowners seek new and existing energy services challenging empirical assessments that do not control for the technical state of multiple end uses

endogenous debt constraints in a life cycle model with an application to social security this paper develops a simple life cycle model that embeds a theory of debt restrictions based on the existence of inalienable property rights a la kehoe and levine 1993 debt constrained asset markets review of economic studies 60 4 865 888 2001 liquidity constrained markets versus debt constrained markets econometrica 69 3 575 598 in our environment net debtors have the option of defaulting on unsecured debt at the cost of being subjected to wage garnishment and or having some or all of their future assets seized by creditors one advantage of our framework is that it encompasses two standard versions of the life cycle model one with perfect capital markets and one with a non negative net worth restriction we study the impact of a payroll financed social security system to illustrate the role of endogenous debt constraints and compare our results to a model with exogenous debt constraints whereas the aggregate effects are similar under both types of constraints the distributional consequences are found to be significantly different across debt regimes

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

household search and the aggregate labor market we develop a theoretical model with labour market frictions incomplete financial markets and with households which have two members households face unemployment risks but their members adjust their labour supplies to insure against unemployment we use the model to explain the cyclical properties of aggregate employment and participation as in the u s data the model predicts that the participation rate the fraction of individuals that want jobs is not strongly correlated with aggregate economic activity this property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions when we assume bachelor households or households with infinitely many members complete markets in the two member household model and in the data primary earners are always in the labour force secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate their behaviour insures the household against unemployment risks

the individual life cycle annuity market imperfections and economic growth we study the effects of an annuity market imperfection on individual agents life cycle decisions and on the macroeconomic growth rate in an overlapping generations model with single sector endogenous growth our model features both age dependent mortality and labour productivity we model imperfect annuities by introducing a load factor on the annuity rate faced by finitely lived agents our main finding is that annuity market imperfections decrease economic growth because less assets are necessary for consumption late in life in addition we find that both the quantitative and qualitative effects of annuity market imperfections are grossly overestimated in a partial equilibrium analysis because it disregards general equilibrium repercussions

empirical estimates of the direct rebound effect a review beginning with william stanley jevons in 1865 a number of authors have claimed that economically justified energy efficiency improvements will increase rather than reduce energy consumption jevons paradox is extremely difficult to test empirically but could have profound implications for energy and climate policy this paper summarises and critiques the arguments and evidence that have been cited in support of jevons paradox focusing in particular on the work of len brookes and harry saunders it identifies some empirical and theoretical weaknesses in these arguments highlights the questions they raise for economic orthodoxy and points to some interesting parallels between these arguments and those used by the biophysical school of ecological economics while the evidence in favour of jevons paradox is far from conclusive it does suggest that economy wide rebound effects are larger than is conventionally assumed and that energy plays a more important role in driving productivity improvements and economic growth than is conventionally assumed 2008 elsevier ltd all rights reserved

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

the intergenerational persistence of lifetime earnings abstract this paper proposes a new method for estimating the intergenerational persistence of lifetime earnings from data that contain only short sections of individual earnings histories the approach infers lifetime earnings persistence from the persistence of short earnings averages together with information about the stochastic process governing individual earnings i find that lifetime earnings are substantially more persistent than previous estimates based on short panel data suggest about 54 of lifetime earnings differences between fathers persist into their sons generation this persistence estimate exceeds previous estimates based on five year earnings averages by one third these findings are robust against alternative assumptions about the data generating process for earnings

labor supply in the past present and future a balanced growth perspective the absence of a trend in hours worked in the postwar united states is an exception across countries and historically hours fall steadily by a little below 0 5 per year are steadily falling hou

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

individual and aggregate labor supply in heterogeneous agent economies with intensive and extensive margins we develop a heterogeneous agent general equilibrium model that incorporates both intensive and extensive margins of labor supply a nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins we consider calibrated versions of this model that dier in the value of a key preference parameter for labor supply and the extent of heterogeneity the model is able to capture the salient features of the empirical distribution of hours worked including how individuals transit within this distribution we then study how the various specications inuence labor supply responses to aggregate technology shocks we nd that abstracting from intensive margin adjustment has large eects on the volatility of aggregate hours even if intensive margin uctuates relatively little

human resource management practices in the multinational company a test of system societal and dominance effects does the use of hrm practices by multinational companies mncs reflect their national origins or are practices similar regardless of context to the extent that practices are similar is there any evidence of global best standards the authors use the system societal and dominance framework to address these questions through analysis of 1 100 mnc subsidiaries in canada ireland spain and the united kingdom they argue that this framework offers a richer account than alternatives such as varieties of capitalism the study moves beyond previous research by differentiating between system effects at the global level and dominance effects arising from the diffusion of practices from a dominant economy it shows that both effects are present as are some differences at the societal level results suggest that mncs configure their hrm practices in response to all three forces rather than to some uniform global best practices or to their national institutional contexts

self selection bias in the evaluation of voluntary energy conservation programs while voluntary energy conservation programs have been extensively promoted by electric utilities and public utility commissions their effectiveness has been insufficiently critiqued this paper contributes to the growing evaluation of such programs by measuring the net energy savings directly attributable to an actual set of programs the analysis explicitly corrects for the self selection bias that can arise in program evaluation the correction is found to be important traditional evaluation methods are subject to considerable bias correcting for this bias the amount of program induced energy savings is found to be considerably less than traditionally believed copyright 1988 by mit press

epa s voluntary 33 50 program impact on toxic releases and economic performance of firms abstract this paper examines the motivations for participation in the voluntary 33 50 program and the program s impact on the toxic releases and economic performance of firms in the u s chemical industry it demonstrates that the benefits due to public recognition and the potentially avoided costs of liabilities and compliance under mandatory environmental regulations provide strong incentives for participation after controlling for sample selection bias and the impact of other firm specific characteristics this paper shows that program participation led to a statistically significant decline in toxic releases over the period 1991 93 the program also had a statistically significant negative impact on the current return on investment of firms but its impact on the expected long run profitability of firms was positive and statistically significant

macroprudential and monetary policies implications for financial stability and welfare in this paper we analyze the implications of macroprudential and monetary policies for business cycles welfare and financial stability we consider a dynamic stochastic general equilibrium dsge model with housing and collateral constraints a macroprudential rule for the loan to value ratio ltv which responds to credit growth interacts with a traditional taylor rule for monetary policy we compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non coordinated way we find that both policies acting together unambiguously improves the stability of the system in both cases this interaction is welfare improving for the society especially in the case of the non coordinated game there is though a trade off between borrowers and savers however borrowers can compensate the saver s welfare loss view the mathml sourcela kaldor hicks to achieve a pareto superior outcome

scale and transfers in international emissions offset programs abstract voluntary emissions offset programs between developing and industrialized countries suffer from adverse selection because participants will self select into the program in contrast pure subsidies for mitigation lead to full participation and hence efficiency but require large financial transfers which make them unattractive to industrialized countries we present a simple model to demonstrate the impact of three policy options on the performance of offset programs 1 baseline scale increases 2 offset discounting and 3 setting stringent baselines with baseline scale increases entire political jurisdictions such as regions or nations are assigned a single aggregate baseline and must choose whether to participate as one entity we find that increasing scale both improves efficiency and reduces transfers from offset buyers to sellers offset discounting means paying less than the value of abatement and can be paired with trading ratios between offsets and allowances in a cap and trade system we show that discounting is inefficient but can make offsets more attractive to industrialized countries setting stringent baselines also involves a tradeoff between efficiency and transfers we finally show that pareto efficient policies that are individually rational for buyers and sellers entail some combination of discounting and or stringent baselines offset policies are never first best but can be efficiency improving especially with increased scale

pareto and piketty the macroeconomics of top income and wealth inequality abstract since the early 2000s research by thomas piketty emmanuel saez and their coauthors has revolutionized our understanding of income and wealth inequality in this paper i highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally one of the key links between data and theory is the pareto distribution the paper describes simple mechanisms that give rise to pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries for example it is in this context that the role of the famous r g expression is best understood

smart meter devices and the effect of feedback on residential electricity consumption evidence from a natural experiment in northern ireland abstract using a unique set of data and exploiting a large scale natural experiment we estimate the effect of real time usage information on residential electricity consumption in northern ireland starting in april 2002 the utility replaced prepayment meters with advanced meters that allow the consumer to track usage in real time we rely on this event account for the endogeneity of price and payment plan with consumption through a plan selection correction term and find that the provision of information is associated with a decline in electricity consumption of 11 17 we find that the reduction is robust to different specifications selection bias correction methods and subsamples of the original data the advanced metering program delivers reasonably cost effective reductions in carbon dioxide emissions even under the most conservative usage reduction scenarios

intergenerational transfers and savings in recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis the key question stimulating this research is what is the main explanation for savings is it primarily accumulation for retirement as claimed by albert ando richard brumberg and franco modigliani in their celebrated life cycle model of savings is it primarily intentional accumulation for intergenerational transfers or is it primarily precautionary savings much of which may be bequeathed because of imperfections in annuity markets this paper examines a range of findings on the importance of intergenerational transfers the strong conclusion that emerges from this evidence is that intergenerational transfers play a very important if not a key role in aggregate wealth accumulation while intergenerational transfers figure very large in savings the precise motivation for such transfers is unclear intergenerational altruism might appear the most likely candidate but at least sane stylized facts such as the equal allocation of bequests among children are strongly at adds with the altruism model other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise this abstract was borrowed from another version of this item

voluntary compliance with market based environmental policy evidence from the u s acid rain program the u s acid rain program implemented a nationwide market for electric utilities sulfur dioxide so2 emissions and included voluntary compliance possibilities for nonaffected sources i observe significant voluntary participation albeit with small impact on the so2 market mostly from sources with counterfactual emissions below their allowance allocations an ex post analysis suggests that costs from the resulting higher emissions outweigh savings from shifts in emissions reductions from high cost affected sources to low cost nonaffected sources further utilities voluntary participation is well explained by economic variables which provides new evidence of cost effective compliance strategies and low transaction costs

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

risk uncertainty and the dynamics of inequality abstract the dynamics of wealth inequality are studied in a continuous time blanchard yaari model investment returns are idiosyncratic and subject to knightian uncertainty in response agents formulate robust portfolio policies these policies are nonhomothetic wealthy agents invest a higher fraction of their wealth in uncertain assets yielding higher mean returns this produces a feedback mechanism that amplifies inequality it also produces an accelerated rate of convergence which helps resolve a puzzle recently identified by gabaix et al 2016 an empirically plausible increase in uncertainty can account for about half of the recent increase in top wealth shares

empirical evidence of direct rebound effect in catalonia this paper reviews the empirical literature concerning the direct rebound effect in households it briefly analyzes the main theoretical and methodological aspects and finally estimates the magnitude of direct rebound effect for all energy services using electricity in households of catalonia spain using econometric techniques the main results show an estimated direct rebound effect of 35 in the short term and 49 in the long term the existence of a rebound effect reduces the effectiveness of energy efficiency policies

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

the measurement of saving investment and wealth there is probably no concept other than saving for which u s official agencies issue annual estimates that differ by more than a third as they have done for net household saving or for which reputable scholars claim that the correct measure is close to ten times the officially published one yet despite agreement among economists and policymakers on the importance of this measure huge inconsistencies persist contributors to this volume investigate ways to improve aggregate and sectoral saving and investment estimates and analyze microdata from recent household wealth surveys they provide analyses of national income and product account nipa and flow of funds measures and of saving and survey based wealth estimates conceptual and methodological questions are discussed regarding long term trends in the u s wealth inequality age wealth profiles pensions and wealth distribution and biases in inferences about life cycle changes in saving and wealth some new assessments are offered for investment in human and nonhuman capital the government contribution to national wealth nipa personal and corporate saving and banking imputation

the role of effort for self insurance and its consequences for the wealth distribution i explore the effect of effort as a mechanism to alleviate the idiosyncratic risk faced by individuals in the presence of incomplete markets i construct a dsge model where costly effort determines the probability of being employed the next period and a riskless asset can be used to smooth consumption i first show how effort and assets are inverse related and that a unique stationary equilibrium exists then in a calibrated version of the model to the us economy i show that in the stationary equilibrium a positively skewed wealth distribution arises which is closer to the observed data and has not been obtained by models without ex ante heterogeneity i then use the model to evaluate the effect of unemployment insurance on the wealth distribution

taxing top earners a human capital perspective we assess the consequences of substantially increasing the marginal tax rate on u s top earners using a human capital model we nd that 1 the peak of the model laer curve occurs at a 52 percent top tax rate 2 if human capital were exogenous then the top of the laer curve would occur at a 66 percent top tax rate and 3 applying the theory and methods that diamond and saez 2011 use to provide quantitative guidance for setting the top tax rate to model data produces a tax rate that substantially exceeds 52 percent

wealth inequality and altruistic bequests this paper examines the role of bequests and inter vivos gifts in the u s economy considering their importance in determining i the economy s aggregate capital stock ii the distribution of private net worth and iii public policy outcomes and options it focuses on several recent calibrated simulations this abstract was borrowed from another version of this item

flat tax reform a quantitative exploration abstract this paper explores quantitatively the general equilibrium implications of a revenue neutral tax reform in which the current income and capital income tax structure in the u s is replaced by a flat tax as proposed by hall and rabushka 1995 the flat tax 2nd ed hoover the central aspects of such reform the impact of tax reform on capital accumulation and labor supply as well as its distributional consequences are analyzed in a dynamic general equilibrium model main results are that i the elimination of the actual taxation of capital income has an important and positive effect on capital accumulation ii mean labor hours are relatively constant across tax systems but aggregate labor in efficiency units increases iii in all circumstances analyzed the distributions of earnings income and especially wealth become more concentrated

endogenous market incompleteness with investment risks abstract this paper studies a general equilibrium economy in which agents have the ability to invest in a risky technology the investment risk cannot be fully insured with optimal contracts because shocks are private information we show that the presence of investment risks lead to under accumulation of capital relative to an economy where idiosyncratic shocks can be fully insured we also show that the availability of state contingent optimal contracts compared to simple debt contracts brings the aggregate stock of capital close to the complete markets level institutional reforms that make possible the use of these contracts have important welfare consequences

energy efficiency and household behavior the rebound effect in the residential sector over the years various efficiency policies have been designed and implemented to reduce residential energy consumption however it is very common that the policy expectations that are based upon engineering calculations do not come true the widely accepted explanation for the gap between expectation and the realization is the change of household behavior as the energy efficiency gains change the perceived cost of energy services and thereby generate shifts in consumption patterns the rebound effect the real controversy about the rebound effect lies in the identification of its magnitude in this paper we estimate the rebound effect in residential energy consumption by comparing the actual gas consumption levels with the ex ante predictions within a sample of well over 600 000 dutch dwellings and households we find a significant deviation between the engineering predictions and the households actual energy consumption a difference which varies by ownership wealth income and the actual gas use intensity our results show a rebound effect of 26 7 percent among home owners and 41 3 percent among tenants moreover we find that these effects are greatest among the lower income wealth groups and among households that tend to use more gas than average

from skills revolution to productivity miracle not as easy as it sounds this article surveys the potential impact of skill on productivity it opens with a review of the utility of productivity as a measure of systemic economic performance and then goes on to explore the oft assumed close and strong relationship between skills and productivity the importance of other factors and types of investment is stressed these complementary elements may be at least as important as skill in boosting performance and their absence may negate the impact of public investment in education and training the ability of economic development policy particularly as it relates to the regional development agencies to address skills and economic development is assessed and questions are raised about what type and level of skill might have the largest impact on economic performance in conclusion we discuss the demands that new policy approaches are making upon the machinery and personnel of government

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

public versus private provision of liquidity is there a trade off abstract to what extent is public debt private liquidity much policy advice given in the aftermath of the financial crisis rests on the assumption that increasing public debt relaxes borrowing constraints of private households this is the case for ad hoc debt limits which are exogenous to public policy instead if debt limits are fully endogenous as e g in the case of the natural borrowing limit public debt has no impact we assume that borrowing limits arise because of limited contract enforceability and are therefore determined as equilibrium outcomes using an incomplete markets economy in which households are subject to uninsurable earnings shocks we show that public debt provides some liquidity but less so than it would if constraints were imposed ad hoc we show that generating borrowing constraints as an equilibrium outcome substantially alters the answers to other important questions such as for the welfare effects of government debt or its impact on real economic activity

modeling earnings dynamics in this paper we use indirect inference to estimate a joint model of earnings employment job changes wage rates and work hours over a career we use the model to address a number of important questions in labor economics including the source of the experience profile of wages the response of job changes to outside wage offers and the effects of seniority on job changes we also study the dynamic response of wage rates hours and earnings to various shocks and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime we find that human capital accounts for most of the growth of earnings over a career although job seniority and job mobility also play significant roles unemployment shocks have a large impact on earnings in the short run as well as a substantial long term effect that operates through the wage rate shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job specific error components of wages and hours

income risk macroeconomic and demographic change and economic inequality in japan abstract using an olg model with heterogeneous households we investigate the relationship among income risk macroeconomic and demographic changes and economic inequality between 1980 and 2000 in japan by decomposing the primary factors in earnings and consumption inequality into macroeconomic variables and the demographic variable we find that our model replicates the evolution of economic inequality in japan by performing counterfactual simulations we demonstrate that two factors changes in time varying macroeconomic factors and the unexpected decline in the total factor productivity growth rate played important roles in the increase in earnings and consumption inequality in the 1990s

a macroeconomic analysis of energy subsidies in a small open economy we construct a dynamic model of a small open economy to analyze the effects of large energy subsidies the model includes domestic energy production and consumption trade in energy at world market prices as well as private and public sector production the model is calibrated to egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment we calculate the new steady states transition paths to the new steady state and the size of the associated welfare losses or gains our main results for a 15 cut in energy subsidies are 1 steady state gross domestic product drops in most of our experiments as less energy is used in production 2 steady state consumption rises in most of our experiments 3 welfare can rise by as much as 0 6 in consumption equivalent terms 4 the largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment jel e21 e63 h55 j26 j45 to understand the effects of subsidies and taxes on an energy sector and on consumption in a given country requires establishing a complete picture of the market in which it operates and of the various policies past and present that have applied to it iea 2010c 11 1 introduction a report by the international energy agency iea 2010a in 2010 identified 37 countries that together account for 95 of global subsidized fossil fuel consumption and found that total fuel consumption subsidies were about 557 billion in 2008 a stark increase from 342 billion in 2007 countries with the highest subsidies for energy turn out to be smaller oil producing countries like iran 65 billion in subsidies in 2009 20 of gross domestic product gdp saudi arabia venezuela and egypt iea 2010b the underpricing of energy can lead to excess consumption of energy that together with the need to finance these subsidies can have adverse economic effects both intra and intertemporally energy subsidies may therefore have large adverse effects on capital accumulation economic growth and hence welfare especially for future generations the iea estimates that many countries forgo faster growth of up to 2 6 by subsidizing energy iea 2010c since 2008 many major oil subsidizing countries have started to bring their prices in line with world market prices among them china russia india and indonesia many of the concerns about the inefficiency of energy subsidies have focused on environmental aspects and green house gas ghg emissions in particular the iea 2010c estimates that a world wide reduction of fuel subsidies could decrease ghg emissions in the long run by around 10 there are relatively few studies of the short term and long term macroeconomic effects of reductions in energy subsidies these effects are complex and require an explicit dynamic modeling approach there are many interrelated effects 1 phasing out energy subsidies alters the price of energy relative to other consumption goods and hence not only the quantity demanded for energy but also the demand for other goods 2 the degree of complementarity substitutability between these consumption goods together with the expectations of the time path for the phase out influences savings behavior and thus capital accumulation of households 3 changing energy subsidies influences use of energy in production whether energy is a complement or a substitute to other factors of production influences total output and marginal products of all factors of production 4 changes in factor payments influence household income and thus consumption and savings behavior 5 phasing out energy subsidies allows for other changes in the government budget such as changes in tax rates or other government expenditures which in turn will influence firm and household behavior

the industrial policy of competitiveness a review of recent developments in the uk the article reviews the recent developments in uk competitiveness policy and explores its relationship with industrial policy including regional industrial policy it argues that competitiveness is virtually synonymous with productivity growth but that while four competitiveness white papers of the 1990s potentially broadened the scope of uk industrial policy the shift from sectoral to horizontal measures has in fact helped much reduce the content of this policy the article reviews current industrial policy and expenditure distinguishing between the areas of science and technology small firms and regional policy it argues that industrial policy is now a part of competitiveness policy being closely aligned to the efficiency role of government it finds that while policy has converged on a narrower set of measures the traditional boundaries between the science and technology small firm and regional policy components have become much less clear cut

precautionary wealth accumulation this paper provides theoretical foundations for when individual and aggregate wealth accumulation increase as earnings risk increases stated in terms of a simple picture the problem addressed in this paper is to find sufficient conditions such that the pattern in figure 1 holds figure 1 describes a situation in which an individual s expected wealth accumulation profile is weakly greater at each age over the life cycle whenever the individual faces one earnings process that is riskier than another earnings process other things equal two important open questions can be answered by finding sufficient conditions for the pattern in figure 1 to occur first there is the question of when theory predicts that households that face more earnings risk have more expected wealth accumulation at any point in the life cycle than households that face less earnings risk the development of such a theory would be helpful as there is a sizeable empirical literature related to this question which is surveyed by browning and lusardi 1996 second there is the question of when theory predicts that aggregate wealth accumulation increases as earnings risk increases much of the interest in the precautionary savings literature is based on the possibility that an important part of aggregate wealth is due to uninsured earnings risk this question can also be answered with figure 1 the idea is to treat the expected wealth profile of one individual as the realized average wealth profile of a large number of similarly situated individuals the law of large numbers justifies this when shocks are independent across individuals and thus earnings risk is idiosyncratic since aggregate wealth holding is a weighted sum of the average wealth holdings of individuals at different ages an upward shift of the expected wealth profile of all agents then implies that aggregate wealth holding increases with increases in earnings risk other things equal this paper provides the first general answer to when the pattern in figure 1 occurs in the context of a multi period model with independent earnings shocks the answer is given at two levels in terms of properties of the decision rule for savings i e the savings function and in terms of preferences a savings function maps an individual s current state e g current wealth and earnings and age into savings or wealth carried into the next model period given a specific earnings process since economists are familiar with the merits of sufficient conditions stated in terms of preferences i will try to motivate why sufficient conditions stated in terms of the savings function are interesting first they are widely applicable they apply to theories where savings decisions maximize a utility function or are given by a rule of thumb they also apply to models where there is wage risk and there are both consumption saving and labour leisure decisions second in so far as the savings function can be estimated it is useful for an empirical

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

aggregate precautionary savings when is the third derivative irrelevant abstract when are aggregate precautionary savings positive we address this question in the context of a general equilibrium model where infinitely lived agents receive idiosyncratic labor endowment shocks hold a risk free asset to smooth consumption and face a liquidity constraint we prove that 1 the steady state capital stock is always larger in any equilibrium with idiosyncratic shocks and a liquidity constraint than without idiosyncratic shocks i e aggregate precautionary savings are positive as long as consumers are risk averse and 2 aggregate precautionary savings occurs if and only if the liquidity constraint binds for some agents

strategic rate making in the context of dynamic ramsey pricing as a result of the public utilitie regulatory policies act of 1978 purpa state public utility commissions have begun to implement cost based rate setting procedures in order to rationalize energy choices made by utilities and utility customers this rationalization had been necessary in view of the increased competition characterizing the eletric utility industry taking these regulatory and competitive change as a point of departure we develop and implement an electricity rate setting model which is cost based which explicitly accounts for static and dynamic competitive pressures and which is welfare maximizing the model extends standard ramsey methods to include bothshort run andlong run price responses in the inverse elasticity rule we use the estimated model to evalute and design alternative rates our analysis takes a distincly strategic approach explicitly addressing competition from other fuels and the possibility of competitive bypass

a credible approach for measuring inframarginal participation in energy efficiency programs abstract economists have long argued that many recipients of energy efficiency subsidies may be non additional getting paid to do what they would have done anyway demonstrating this empirically has been difficult however because of endogeneity concerns and other challenges in this paper we use a regression discontinuity analysis to examine participation in a large scale residential energy efficiency program comparing behavior just on either side of several eligibility thresholds we find that program participation increases with larger subsidy amounts but that most households would have participated even with much lower subsidy amounts the large fraction of inframarginal participants means that the larger subsidy amounts are almost certainly not cost effective moreover the results imply that about half of all participants would have adopted the energy efficient technology even with no subsidy whatsoever

the impacts of energy efficiency policies meta analysis abstract this paper attempts to quantitatively summarize the existing empirical evidence on the effects of energy efficiency policies on energy demand and on the price of associated durable goods as well as to identify the main factors that systematically affect the estimated impacts to this end a meta regression analysis of the effects of energy efficiency policies is carried out on the basis of an extensive review of the existing literature selecting those studies that analyze the impact of energy efficiency policies with respect to a business as usual setting taking into account the econometric problems associated with this type of analysis intra class correlation cross sectional dependence publication bias in pursuit of robust outcomes the results show that the studies analyzing the effects of energy efficiency policies estimate a significant impact of these policies on energy demand 10 5 8 8 and the price of related durable goods 7 9 6 the main factors that influence results are the policy instrument the targeted sector the type of country the analyzed period the consideration of free riders and the type of analysis data and publication energy demand and the sector and analyzed period price of durables

improving productivity opening the black box hourly productivity levels in the uk still remain behind those in some competitor countries the government devotes much policy attention to enhancing productivity and continues to emphasise its five drivers investment innovation skills enterprise and competition this article argues that it is investment broadly defined that is the key to sustained productivity improvement the emphasis should be on improving productivity simultaneously with improving the quality of production only thus will the gains be widely shared in achieving these aims there are two prerequisites for policy makers the first is to ensure better coordination of policy than appears to be currently achieved by the present departmental structures in whitehall the second is to recognize fully the long and complex chain of causation that can be triggered by pulling on one policy lever such complexity can only be fully understood by more research on what actually goes on inside the black box of the organization 2006 oxford university press

wealth distribution and optimal inheritance taxation in life cycle economies with intergenerational transfers we introduce intergenerational transfers into a general equilihrium life cycle model in order to explain observed levels of wealth heterogeneity in our overlapping generations model heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren furthermore agents face stochastic employment opportunities the model is calibrated with regard to the characteristics of the us economy our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv the introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution preliminary versions of this paper have been presented at conference on intergenerational transfers taxes and the distribution of wealth in uppsala 1999 and the econoinetric societv european meetirig in santiago dc compostela 1999 we would like to thank michael kaganovieli john laitner james smith frank stafford and carl cristian von weizsacker for comments on earlier versions of the paper all remaining errors are ours

the influence of rebate programs on the demand for water heaters the case of new south wales this paper examines the role of australian hot water system rebate programs in shifting the existing stock of electric water heaters toward more climate friendly versions using two unique data sets from new south wales homeowners the first data set is based on a survey of households who recently purchased a water heater before and after the rebate programs were in place the other is based on a set of stated preference questions asked of households soon to face a replacement decision while the former allows us to look at recent responses the latter enables us to forecast future demand we find that the programs significantly increase shares of solar heat pump systems the programs however appear less effective in reducing the stock of electric heaters for households with access to natural gas this pattern is consistent in both datasets results from the discrete choice experiments suggest considerable heterogeneity with respect to household preferences toward different types of water heaters and the discount rates they hold the effective cost of reducing carbon emissions via incentives for water heater replacement is considered from the counterfactual perspective of no government incentives