explaining cross cohort differences in life cycle earnings abstract college educated workers entering the labor market in 1940 experienced a 4 fold increase in their labor earnings between the ages of 25 and 55 in contrast the increase was 2 6 fold for those entering the market in 1980 for workers without a college education these figures are 3 6 fold and 1 5 fold respectively why are earnings profiles flatter for recent cohorts we build a parsimonious model of schooling and human capital accumulation on the job and calibrate it to earnings statistics of workers from the 1940 cohort the model accounts for 99 of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts 52 for workers without a college education the flattening in our model results from a single exogenous factor the increasing price of skills the higher skill price induces i higher college enrollment for recent cohorts and thus a change in the educational composition of workers and ii higher human capital at the start of work life for college educated workers in the recent cohorts which implies lower earnings growth over the life cycle

why do investment euler equations fail this article isolates sources of misspecification in neoclassical investment euler equations without ad hoc alterations of the basic model first allowing for nonlinear marginal investment adjustment costs improves model performance slightly some further improvement results from isolating firms whose optimality conditions hold even in the presence of fixed costs of adjustment or costly reversibility finally i identify which instruments contribute to model failure via standard gmm based tests and also via the empirical likelihood estimator of imbens which allows testing overidentifying restrictions individually both methods show that financial instruments contribute to rejection of the overidentifying restrictions for all firms however only the empirical likelihood estimator shows that they are a source of failure for firms that attain an interior optimum

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

on the intergenerational transmission of economic status we present a model in which human capital investments occur over the life cycle and across generations a la becker and tomes the human capital technology features multiple stages of childhood investments college and life cycle accumulation the model can explain a wide range of intergenerational relationships while remaining empirically consistent with cross sectional inequality much of the latter is determined by early investments in children so that borrowing constraints faced by young parents are important for understanding the persistence of economic status across generations education subsidies especially early on can significantly reduce the intergenerational persistence of economic status

non convexities in the adjustment of different capital inputs a firm level investigation recent developments in investment research have highlighted the importance of non convexities and irreversibilities in firms adjustment of quasi fixed inputs aggregation across capital goods may smooth out the discontinuities associated with the adjustment of individual assets lack of suitable data is one of the reasons why empirical work has typically relied on the assumption of capital homogeneity in this paper we exploit a data set of 1539 italian firms which allows us to disaggregate capital into equipment and structures and purchases and sales of assets we construct measures of fundamental q to capture investment opportunities associated with each asset we uncover the pattern of dynamic adjustment by using non parametric techniques to relate each individual investment to its own fundamental q

environmental policy public finance and the labour market in a second best world abstract environmental and tax policies and the optimal provision of clean and dirty public goods are analysed within the context of a second best framework of optimal taxation households consume both clean and dirty commodities degradation of the natural environment occurs due to the consumption of dirty private and public goods but can be offset when the government engages in abatement activities increased environmental concern implies a higher dirt tax a lower tax on labour less employment more public abatement and a cleaner environment if the elasticity of substitution between private consumption commodities and leisure is large and that between clean and dirty goods is small public consumption may expand while private consumption contracts otherwise public consumption falls

are ideas getting harder to find in many growth models economic growth arises from people creating ideas and the long run growth rate is the product of two terms the effective number of researchers and their research productivity we present a wide range of evidence from various industries products and firms showing that research effort is rising substantially while research productivity is declining sharply a good example is moore s law the number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s across a broad range of case studies at various levels of dis aggregation we find that ideas and in particular the exponential growth they imply are getting harder and harder to find exponential growth results from the large increases in research effort that offset its declining productivity

not so voluntary retirement decisions evidence from a pension reform abstract firms may encourage their workers to retire early experience rating of early retirement benefits creates incentives for firms to avoid this we use a pension reform as a natural experiment in order to evaluate the effect of this experience rating the key result is that experience rating of early retirement benefits reduces early exits of older workers

efficient dynamic pollution taxation in an uncertain environment this paper analyzes efficient pollution taxation within a stochastic model of endogenous growth pollution is a by product of production and causes disutility furthermore the productivity which results from environmental quality is uncertain this reflects e g uncertain capital depreciation induced by natural disasters like hurricanes or floods this uncertainty is shown to raise an ambiguous impact on the optimal pollution level as well as on optimal environmental taxation market equilibrium turns out to be suboptimal since the households mis perceive their individual impact on pollution conditions for welfare maximizing pollution taxation are stated and it is shown that a direct pollution tax is not appropriate to yield pareto optimal growth instead a linear capital income tax together with a linear abatement subsidy build an efficient tax scheme if secondarily the governmental budget is balanced moreover an increase in the riskiness of environmental productivity may even lead to an increase in the optimal pollution level and to a decrease in optimal environmental taxation depending predominantly on the preference parameters

the effects of the unemployment insurance payroll tax on wages employment claims and denials abstract following a 13 year period when all employers in washington paid the same unemployment insurance ui tax rate washington was forced to adopt an experience rated tax system in 1985 we use this natural experiment to explore both tax incidence and the effects of experience rating we find that industry average tax rates are largely passed on to workers through lower earnings however our estimates imply that a firm can shift much less of the difference between its tax rate and the industry average rate our results also indicate that experience rating reduces turnover and ui claims and increases claim denials

government policy to reduce pollution emissions within the overlapping generations model this article develops an overlapping generations model with multiple categories of capital the importance of this article is in its ability to analyse changes in the distribution of various categories of capital along the growth path of the economy economic growth is accompanied by capital growth as well as increase in pollution emissions implementing a government policy to reduce pollution emission would change the equilibrium path of capital distribution within the model the government builds a corporate tax function that defines the tax rate as a function of a desired pollution level the tax rate decreases as the desired pollution level is higher when the desired pollution level is higher than the actual pollution level production is subsidized and pollution levels rise an example and a simulation are presented in order to confirm the theoretical results and demonstrate that the model can be used for empirical analysis

the gift of the dying the tragedy of aids and the welfare of future african generations this paper simulates the impact of the aids epidemic on future living standards in south africa i emphasize two competing effects on the one hand the epidemic is likely to have a detrimental impact on the human capital accumulation of orphaned children on the other hand widespread community infection lowers fertility both directly through a reduction in the willingness to engage in unprotected sexual activity and indirectly by increasing the scarcity of labor and the value of a woman s time i find that even with the most pessimistic assumptions concerning reductions in educational attainment the fertility effect dominates the aids epidemic on net enhances the future per capita consumption possibilities of the south african economy

anticipated environmental policy and transitional dynamics in an endogenous growth model this paper makes a new attempt toinvestigate how an anticipatedenvironmental policy governs the transitionaldynamics of an economy when pollutionexternality is taken into account themodeling strategy we use is an ak technologyendogenous growth framework with an endogenousleisure labor choice it is found that unlikeinelastic labor supply framework a rise inpublic abatement expenditure will stimulate thebalanced economic growth rate it is alsofound that public abatement technology plays animportant role in determining the transitionaladjustment of the economic growth rate inresponse to a pre announced environmentalpolicy

pollution the cost of public funds and endogenous growth abstract theories of endogenous growth are used to investigate the effect of environmental policy on the rate of economic growth and the provision of public goods in a second best market outcome pollution gives rise to a negative environmental externality and is modeled as an inevitable by product of production the government faces the dual task of on the one hand internalising environmental externalities and on the other hand raising public funds to finance public spending a tougher environmental policy reduces the rate of economic growth improves environmental quality raises the optimal tax rate and changes the composition of public spending away from productive government spending towards public consumption and abatement the marginal cost of public funds falls rises if productive government spending is negligible substantial relative to public consumption and abatement

experience rating of unemployment insurance and the incidence of unemployment among workers who are laid off from their previous jobs more than 70 percent collect benefit payments from the unemployment insurance ui system these benefits are widely asserted to reduce the rate at which unemployed individuals find new jobs so that measured unemployment is increased by unemployment insurance a large body of empirical evidence now exists that shows this effect on the duration of unemployment spells 2 far less attention both in policy debate and in research has been paid to the fact that the unemployment insurance system encourages persons to become unemployed in this paper i focus on the empirical structure and the effects of these incentives the results show that unem

human capital and the wealth of nations we reevaluate the role of human capital in determining the wealth of nations we use standard human capital theory to estimate stocks of human capital and allow the quality of human capital to vary across countries our model can explain differences in schooling and earnings profiles and consequently estimates of mincerian rates of return across countries we find that effective human capital per worker varies substantially across countries cross country differences in total factor productivity tfp are significantly smaller than found in previous studies our model implies that output per worker is highly responsive to changes in tfp and demographic variables jel e23 i25 j24 j31 o47 no question has perhaps attracted as much attention in the economics literature as why are some countries richer than others much of the current work traces back to the classic work of solow 1956 solow s seminal paper suggested that differ ences in the rates at which capital is accumulated could account for differences in output per capita more recently following the work of lucas 1988 human capital disparities were given a central role in the analysis of growth and development however the best recent work on the topic reaches the opposite conclusion klenow and rodriguez clare 1997 hall and jones 1999 parente and prescott 2000 and bils and klenow 2000 argue that most of the cross country differences in output per worker are not driven by differences in human capital or physical capital rather they are due to differences in a residual total factor productivity tfp in this paper we revisit the development problem in line with the earlier view we find that factor accumulation is more important than tfp in accounting for relative incomes across countries the key difference between our work and previous analyses is in the measurement of human capital the standard approach largely inspired by the work of mincer 1974 takes estimates of the rate of return to schooling as building blocks to directly measure a country s stock of human capital implicitly this method assumes that the marginal contribution to output of one additional year

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

economic growth and global warming a model of multiple equilibria and thresholds abstract we presume a simple endogenous growth model where global warming affects economic growth and analyze the dynamics of the competitive economy and of the social optimum our regulatory instrument is an emission tax rate we demonstrate that for certain values of the emission tax ratio the competitive economy exhibits multiple equilibria and a threshold may exist that separates the domains of attraction for the growth paths there exist paths to high growth rates and low temperature and low growth rates and high temperature for the planner s problem the long run equilibrium is unique unless the damage of global warming is very small

optimal green tax reforms yielding double dividend in an stylized endogenous growth economy with a negative externality created by co2 emissions and in which abatement activities are made by private firms we find a wide range of dynamically feasible green tax reforms yielding the double dividend without any need to assume a complex production structure or tax system or a variety of externalities in production as a remarkable finding we obtain certain scenarios in which increasing the emissions tax up to the pigouvian level and removing completely the income tax is dynamically feasible and also it is the second best reform hence as a difference to previous literature in these scenarios the first best tax mix is implementable allowing for the elimination of both environmental and non environmental inefficiencies our result arises because of the consideration of public debt issuing and the management of the government budget balance with an intertemporal perspective the result is obtained for an intermediate range of environmental bearing in preferences the valid range being contingent on the pre existing income tax rate the type of tax reform that we propose could also be implemented for different energy taxes

the effects of emission permits on growth and the environment we develop an overlapping generations model of growth and the environment in which industrial firms produce environmentally harmful emissions a government controls the emissions by assigning emission quotas to firms and permits could be issued and freely traded as financial instruments across firms on the basis of the quotas we show that an environmental policy that decreases an aggregate number of emission quotas could degenerate economic growth and lower environmental quality in the long run we also show the implications of this result for environmental policy

the baby boomers and the productivity slowdown abstract the entry of baby boomers into the labor force in the late 1960s and 1970s slowed growth for physical and human capital per worker because young workers have little of both thus the baby boom could have contributed to the productivity slowdown i build and calibrate a model a la huggett et al 2011 with exogenous population growth life expectancy retirement and tfp to evaluate this theory the baby boom alone accounts for 53 of the slowdown in the period 1964 69 18 in 1970 74 and 6 in 1975 79

can environmental taxation stimulate growth the role of indeterminacy in endogenous growth models with environmental externalities abstract this paper examines the effects of environmental taxation on long run growth in an infinitely lived representative agent model of endogenous growth with negative pollution externalities the novelty of this paper lies in its investigation of how the long run effects of environmental taxes are affected by the possible emergence of indeterminacy of equilibria in romer s 1986 increasing returns and long run growth journal of political economy 94 1002 1037 learning by doing model with endogenous labor supply the analysis shows that environmental taxation generally enhances harms long run growth when the balanced growth path is indeterminate determinate

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

human capital prices productivity and growth separate identification of the price and quantity of human capital has important implications for understanding key issues in labor economics and macroeconomics price and quantity series are derived and subjected to robustness checks the human capital price series associated with dierent education levels are highly correlated and exhibit a strong secular trend three result

human capital and earnings distribution dynamics abstract earnings heterogeneity plays a crucial role in modern macroeconomics we document that mean earnings and measures of earnings dispersion and skewness all increase in us data over most of the working life cycle for a typical cohort as the cohort ages we show that i a human capital model can replicate these properties from the right distribution of initial human capital and learning ability ii differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and iii differences in learning ability account for the bulk of the variation in the present value of earnings across agents these findings emphasize the need to further understand the role and origins of initial conditions

investment and competition this paper examines how industry structure affects corporate investment patterns real options theory shows that deferring irreversible investment in the face of uncertainty is valuable theory also shows that the value of waiting to invest falls if investment opportunities are contestable consistent with these theories we find that firms in monopolistic industries exhibit lower investment q sensitivity and are slower to invest than firms in competitive industries however we find that investment q sensitivity and investment speed are highest in oligopolistic industries suggesting that the value of investing strategically can outweigh the value of waiting indeed oligopolistic industries experience less entry and more exit than other industries