6,399 research outputs found
Finite-Life, Private-Information Theory of Unsecured Debt
No full textWe propose a theory of unsecured debt that is based on the existence of private information about a person's type and on the fact that some debtors have the incentive to forego bankruptcy in order to signal their type. The theory formalizes the idea that the type of a person is relevant to trading partners in many exchange situations and by resisting opportunistic behavior in one exchange context, a person may signal valuable information about his type to trading partners in other exchange contexts. In the model, by resisting opportunistic behavior in the credit market borrowers can signal their type to the insurance market. The model is consistent with the observation that insurers use credit scores to predict the likelihood of a person filing insurance claims.Adverse Selection, Insurance, Credit Scores, Default Risk
Offentlig utgiftspolitik och tidsinkonsistens1
No full textÄven den välvilligaste politiker frestas ständigt att bryta mot givna löften och utfästelser. Det har ekonomer känt till sedan Kydland & Prescott [1977], och alla andra har väl känt till det sedan urminnes tider. I denna artikel tar författarna en ny titt på det så kallade tidskonsistensproblemet i ekonomisk politik. Till skillnad från många tidigare studier så är syftet inte att hitta någon ”lösning” på problemet utan att reda ut precis vad som händer i en värld där dagens politiker inte kan binda sina efterträdare (eller ens sig själva i senare tappning) men är medvetna om exakt vilka följder dagens politik har för privat och politiskt beteende nu och i framtiden. Till stor del är det här ett metodproblem som inte närmare låter sig beskrivas i en populärvetenskaplig uppsats. Men på väg mot metodproblemets lösning gör författarna några nya, intressanta och delvis också oväntade kvalitativa insikter. Det visar sig i synnerhet att tidskonsistensproblemet i ett viktigt sammanhang inte är fullt så katastrofalt som man skulle kunna tro, om bara politikerna är tillräckligt sofistikerade
Optimal time-consistent taxation with international mobility of capital
No full textThe United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two-country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of public expenditure under period-by-period balanced budget constraints. There is no commitment technology and the equilibrium policies are time-consistent. We find that differences in productivity, size, and government spending can account for the heavy American reliance on capital taxation.<br/
Time-consistent public policy
No full textIn this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markov-perfect equilibria of the dynamic game between successive governments. The characterization consists of an inter-temporal first-order condition (a “generalized Euler equation”) for the government, and we use it both to gain insight into the nature of the equilibrium and as a basis for computations. For a calibrated economy, we find that when the only tax base available to the government is capital income—an inelastic source of funds at any point in time—the government still refrains from taxing at confiscatory rates. We also find that when the only tax base is labour income the Markov equilibrium features less public expenditure and lower tax rates than the Ramsey equilibrium
Time-consistent optimal fiscal policy
No full texthis article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period's capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.<br/
Do Redistributive Policies Promote Intergenerational Mobility?
No full textNumerous public policies are aimed at improving the earnings opportunities for children of the poor and at reducing lifetime earnings inequality. This paper investigates to what extent such policies accomplish their objectives. A quantitative theory of intergenerational mobility and lifetime earnings inequality is developed and parameterized to match selected features of U.S. data. Numerical experiments are used to measure the steady state effects of policies that increase the returns to human capital accumulation for children of the poor, either by lowering the private costs of education or by reducing labor income taxes for the poor. The main finding is that such policies have very little impact on intergenerational earnings mobility. Moreover, policies that reduce the private costs of education fail to reduce lifetime earnings inequality. These findings suggest that redistributive tax and subsidy policies of the kind studied here may be largely ineffective in promoting equality of opportunity.
The Research Agenda: Determinants of Inequality
No full textJosé-Víctor Ríos-Rull is Professor of Economics at the University of Pennsylvania. His main interests lie in distributional issues in macroeconomics, public economics and demographic economics.
Does Housing Wealth Make Us Less Equal? The Role of Durable Goods in the Distribution of Wealth
No full textWe study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function and the width of the inaction region. We are particularly interested in parameterizations which increase the precautionary motive for saving through an increase in "committed expenditure risk". We find, for an empirically relevant share of durable consumption and for all transaction costs below an upper threshold, that the level of precautionary savings is increasing in the transaction costs. Transaction costs have only a modest impact on the degree of wealth dispersion, as measured by the Gini index, as the associated increase in savings is close to linear in wealth. While we are unable to match the dispersion of wealth in the data, we increase the dispersion over a single asset model (Gini index of .71 for financial assets and .37 for total wealth) and we are able to match the relative dispersion of financial to durable assets, i.e. we find financial assets much more unequal than durable assets. We also match the ratio of housing wealth to total wealth for the median agent. We calibrate the model to data from the PSID, the CES, and the SCFPrecautionary Savings, Wealth Distribution, Durable Goods
Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information
No full textAn important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature—that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the empirical importance of this theory.
Financial Exchange Rates and International Currency Exposures
No full textOur goal in this project is to gain a better empirical understanding of the international financial implications of currency movements. To this end, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements. Further, we demonstrate that many developing countries hold short foreign-currency positions, leaving them open to negative valuation effects when the domestic currency depreciates. However, we also show that many of these countries have substantially reduced their foreign currency exposure over the last decade. Last, we show that our currency measure has high explanatory power for the valuation term in net foreign asset dynamics: exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth shocks.
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