Fiscal Policy with Heterogeneous Agents and Incomplete Markets
Author: Jonathan Heathcote
Publisher:
Published: 1999
Total Pages: 42
ISBN-13:
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Author: Jonathan Heathcote
Publisher:
Published: 1999
Total Pages: 42
ISBN-13:
DOWNLOAD EBOOKAuthor: Anmol Bhandari
Publisher:
Published: 2018
Total Pages: 82
ISBN-13:
DOWNLOAD EBOOKWe study optimal monetary and fiscal policy in a model with heterogeneous agents, incomplete markets, and nominal rigidities. We develop numerical techniques to approximate Ramsey plans and apply them to a calibrated economy to compute optimal responses of nominal interest rates and labor tax rates to aggregate shocks. Responses differ qualitatively from those in a representative agent economy and are an order of magnitude larger. Taylor rules poorly approximate the Ramsey optimal nominal interest rate. Conventional price stabilization motives are swamped by an across person insurance motive that arises from heterogeneity and incomplete markets.
Author: Robert E. Hall
Publisher: Princeton University Press
Published: 2010-02-08
Total Pages: 152
ISBN-13: 1400835267
DOWNLOAD EBOOKIndividuals and families make key decisions that impact many aspects of financial stability and determine the future of the economy. These decisions involve balancing current sacrifice against future benefits. People have to decide how much to invest in health care, exercise, their diet, and insurance. They must decide how much debt to take on, and how much to save. And they make choices about jobs that determine employment and unemployment levels. Forward-Looking Decision Making is about modeling this individual or family-based decision making using an optimizing dynamic programming model. Robert Hall first reviews ideas about dynamic programs and introduces new ideas about numerical solutions and the representation of solved models as Markov processes. He surveys recent research on the parameters of preferences--the intertemporal elasticity of substitution, the Frisch elasticity of labor supply, and the Frisch cross-elasticity. He then examines dynamic programming models applied to health spending, long-term care insurance, employment, entrepreneurial risk-taking, and consumer debt. Linking theory with data and applying them to real-world problems, Forward-Looking Decision Making uses dynamic optimization programming models to shed light on individual behaviors and their economic implications.
Author: Adrian Peralta-Alva
Publisher: International Monetary Fund
Published: 2018-06-22
Total Pages: 49
ISBN-13: 1484364368
DOWNLOAD EBOOKWe quantitatively investigate the macroeconomic and distributional impacts of fiscal consolidations in low-income countries (LICs) through value added tax (VAT), personal income tax (PIT), and corporate income tax (CIT). We extend the standard heterogeneous agents incomplete markets model by including multiple sectors and rural-urban distinction to capture salient features of LICs. We find that overall, VAT has the least efficiency costs but is highly regressive, while PIT impacts the economy in the opposite way with CIT staying in between. Cash transfers targeting rural households mitigate the negative distributional impacts of VAT most effectively, while public investment leads to little redistribution.
Author: Maren Froemel
Publisher:
Published: 2014
Total Pages: 108
ISBN-13:
DOWNLOAD EBOOKThis thesis contributes to the literature emphasizing the role of incomplete financial markets for the design of macroeconomic policies. I use two main frameworks for my analysis: In a small open economy model with default risk and incomplete markets, I study two questions addressing how predictions for optimal fiscal policy over the business cycle change in the presence of borrowing constraints. I use a standard incomplete markets model with heterogeneous agents to assess how government policies can alleviate the welfare losses caused by financial frictions. In the first chapter I argue that government spending can optimally be procyclical when governments cannot borrow in recessions. I decompose total expenditure into public goods and social spending and show that the latter component is crucial in driving this result. Furthermore, I show that higher income inequality exacerbates the welfare losses from conducting countercyclical policies without financial market access. The second chapter of this thesis is joint work with C. Gottlieb. We analyze to which extent a simple redistributive policy in the form of transfers can alleviate the welfare losses caused by frictional insurance markets. We find that targeting transfers towards low income households improves welfare, but reduces output per hours worked. Redistribution is more effective, and welfare is higher than under lumpsum transfers at low tax rates. In the third chapter, I study the role of spending rules on optimal tax policy in a small open economy with a government that lacks commitment to repay its external debt. I find that neither pro- nor countercyclical policy rules qualitatively change the predictions for optimal tax policy.
Author: Lars Ljungqvist
Publisher: MIT Press
Published: 2004
Total Pages: 1120
ISBN-13: 9780262122740
DOWNLOAD EBOOKA significant new edition of a text that offers both tools and sample applications; extensive revisions and seven new chapters improve and expand upon the original treatment.
Author: Roland Benabou
Publisher:
Published: 2000
Total Pages: 76
ISBN-13:
DOWNLOAD EBOOKThis paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy. Such redistributive policies entail distortions to labor supply and savings, but also serve as partial substitutes for missing credit and insurance markets. The resulting tradeoffs for growth and efficiency are explored, both theoretically and quantitatively, in a model which yields complete analytical solutions. Progressive education finance always leads to higher income growth than taxes and transfers, but at the cost of lower insurance. Overall efficiency is assessed using a new measure which properly reflects aggregate resources and idiosyncratic risks but, unlike a standard social welfare function, does not reward equality per se. Simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude, resulting in reasonable values for the optimal rates. Aggregate income and aggregate welfare provide only very crude lower and upper bounds around the true efficiency tradeoff.
Author: Yongseok Shin
Publisher:
Published: 2004
Total Pages: 98
ISBN-13:
DOWNLOAD EBOOKAuthor: Panagiotis Asimakopoulos
Publisher:
Published: 2016
Total Pages: 29
ISBN-13:
DOWNLOAD EBOOKWe assess the role of banks to the transmission of fiscal policy reforms to the economy. We built-up a dynamic stochastic general equilibrium model with heterogeneous agents, banks and government. We find that banks mitigate the negative spillover effects to the economy from higher taxes. Specifically, housing taxes exhibit negative effects to the economy in the short-run and positive in the long-run, if they are welfare enhancing. Borrowers are affected the most from higher housing taxes. The existence of banks benefits impatient households from higher consumption taxes, whereas higher housing tax, targeted on patient households and entrepreneurs, decreases agents' welfare.
Author: Yongsung Chang
Publisher:
Published: 2010
Total Pages: 49
ISBN-13:
DOWNLOAD EBOOKThis paper assesses biases in policy predictions due to the lack of invariance of "structural'' parameters in representative-agent models. We simulate data under various fiscal policy regimes from a heterogeneous-agents economy with incomplete asset markets and indivisible labor supply. Imperfect aggregation manifests itself through preference shocks in the estimated representative-agent model. Preference and technology parameter estimates are not invariant with respect to policy changes. As a result, the bias in the representative-agent model's policy predictions is large compared to the length of predictive intervals that reflect parameter uncertainty.