scholarly journals Consumption Insurance against Wage Risk: Family Labor Supply and Optimal Progressive Income Taxation

2021 ◽  
Vol 13 (1) ◽  
pp. 79-113
Author(s):  
Chunzan Wu ◽  
Dirk Krueger
Keyword(s):  
Life Cycle ◽  
Labor Supply ◽  
Income Taxation ◽  
Consumption Insurance ◽  
Empirical Estimates ◽  
Welfare Losses ◽  
Insurance Mechanism ◽  
Wage Risk ◽  
Progressive Income Taxation ◽  
Wage Shocks

We show that a calibrated life cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2016) in US data. In the model, 35 percent of male and 18 percent of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32 percent and 19 percent. Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intrahousehold income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half. (JEL D15, H21, H24, J16, J22, J31)

scholarly journals Consumption Inequality and Family Labor Supply

2016 ◽  
Vol 106 (2) ◽  
pp. 387-435 ◽  
Author(s):  
Richard Blundell ◽  
Luigi Pistaferri ◽  
Itay Saporta-Eksten
Keyword(s):  
Life Cycle ◽  
Panel Data ◽  
Labor Supply ◽  
Asset Accumulation ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Family Labor ◽  
Insurance Mechanism ◽  
Analytical Expressions ◽  
Wage Shocks

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance. (JEL D12, D14, D91, J22, J31)

scholarly journals Progressive Income Taxation and Economic Growth with Endogenous Labor Supply and Public Good

2015 ◽  
Vol 3 (1) ◽  
pp. 238
Author(s):  
Wei Bin Zhang
Keyword(s):  
Economic Growth ◽  
Public Sector ◽  
Labor Supply ◽  
Economic System ◽  
Income Taxation ◽  
Dynamic Interactions ◽  
Endogenous Labor Supply ◽  
And Gender ◽  
Endogenous Labor ◽  
Progressive Income Taxation

This study builds an economic growth model of gender division labor, endogenous labor supply with nonlinear progressive income taxation. The tax income is spent on supplying public goods. The economic system consists of one production sector and one public sector. The public sector is financially supported by tax incomes. The model describes dynamic interactions of growth and gender division of labor with progressive income taxation. We simulate the model to demonstrate existence of equilibrium and motion of the dynamic system. We also examine effects of changes in different parameters on the motion of the economic system.

How Much Consumption Insurance Beyond Self-Insurance?

2010 ◽  
Vol 2 (4) ◽  
pp. 53-87 ◽  
Author(s):  
Greg Kaplan ◽  
Giovanni L Violante
Keyword(s):  
Life Cycle ◽  
Incomplete Markets ◽  
Consumption Smoothing ◽  
Consumption Insurance ◽  
Empirical Estimates ◽  
Permanent Shocks ◽  
Downward Bias

We assess the degree of consumption smoothing implicit in a calibrated life-cycle version of the standard incomplete-markets model, and we compare it to the empirical estimates of Richard Blundell, Luigi Pistaferri, and Ian Preston (2008) (BPP hereafter) on US data. Households in the data have access to more consumption insurance against permanent earnings shocks than in the model. BPP estimate that 36 percent of permanent shocks are insurable, whereas the model's counterpart of the BPP estimator varies between 7 percent and 22 percent, depending on the tightness of debt limits. We also show that the BPP estimator has a downward bias that grows as borrowing limits become tighter. (JEL D31, D91, E21).

scholarly journals Consumption and Labor Supply with Partial Insurance: An Analytical Framework

2014 ◽  
Vol 104 (7) ◽  
pp. 2075-2126 ◽  
Author(s):  
Jonathan Heathcote ◽  
Kjetil Storesletten ◽  
Giovanni L. Violante
Keyword(s):  
Labor Supply ◽  
Risk Sharing ◽  
Joint Distribution ◽  
Analytical Framework ◽  
Preference Heterogeneity ◽  
Closed Form Solutions ◽  
Pass Through ◽  
Wage Risk ◽  
Partial Insurance ◽  
Wage Shocks

We develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing. Closed-form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption, hours, and wages. We prove identification and demonstrate how labor supply data are informative about risk sharing. The model, estimated with US data over the period 1967–2006, implies that (i) 39 percent of permanent wage shocks pass through to consumption; (ii ) the share of wage risk insured increased until the early 1980s; and (iii) preference heterogeneity is important in accounting for observed dispersion in consumption and hours. (JEL E21, E23, E31, E52)

scholarly journals Life-cycle welfare losses from rules-of-thumb asset allocation

2021 ◽  
Vol 198 ◽  
pp. 109655
Author(s):  
Fabio C. Bagliano ◽  
Carolina Fugazza ◽  
Giovanna Nicodano
Keyword(s):  
Life Cycle ◽  
Asset Allocation ◽  
Welfare Losses ◽  
Rules Of Thumb

scholarly journals An Empirical Model of Labor Supply in a Life-Cycle Setting

1981 ◽  
Vol 89 (6) ◽  
pp. 1059-1085 ◽  
Author(s):  
Thomas E. MaCurdy
Keyword(s):  
Life Cycle ◽  
Labor Supply ◽  
Empirical Model

Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom

2012 ◽  
Vol 50 (2) ◽  
pp. 464-476 ◽  
Author(s):  
Michael Keane ◽  
Richard Rogerson
Keyword(s):  
Human Capital ◽  
Life Cycle ◽  
Optimal Design ◽  
Labor Supply ◽  
Capital Accumulation ◽  
Conventional Wisdom ◽  
Human Capital Accumulation ◽  
Micro Data ◽  
Large Aggregate ◽  
Economic Issues

The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. Conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small. In this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions. In particular, we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin. We conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities. (JEL D91, E24, J22)

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