scholarly journals Fiscal Consolidation: Welfare Effects of the Adjustment Speed

2020 ◽  
pp. 39-67
Author(s):  
Miguel Fonseca
Keyword(s):  
Incomplete Markets ◽  
Overlapping Generations ◽  
German Economy ◽  
Welfare Effects ◽  
Fiscal Consolidation ◽  
Welfare Gains ◽  
Overlapping Generations Model ◽  
Distribution Of Wealth ◽  
Adjustment Speed ◽  
Fiscal Consolidations

This article studies the response of social welfare to fiscal consolidations, by focusing on a less debated characteristic of fiscal plans: the speed of deleveraging. A neoclassical overlapping generations model is calibrated to the German economy, and a sequence of reductions of the same size in the debt‑ to GDP ratio are simulated considering different adjustment periods. Welfare gains are found to be larger in slow, delayed fiscal consolidations, due to the presence of incomplete markets. It is also found that the aggregate welfare response depends on the distribution of wealth and the type of fiscal instrument used.

scholarly journals Skill-Biased Technological Change and Inequality in the U.S.

2020 ◽  
pp. 91-107
Author(s):  
Ana Ferreira
Keyword(s):  
Income Inequality ◽  
Technological Change ◽  
Incomplete Markets ◽  
Gini Coefficient ◽  
Income Tax ◽  
Overlapping Generations ◽  
Overlapping Generations Model ◽  
Biased Technological Change ◽  
Household Heterogeneity ◽  
The U.S

Since the 1980s, income inequality has increased markedly and has reached the highest level ever since it started being recorded in the U.S. This paper uses an overlapping generations model with incomplete markets that allows for household heterogeneity that is calibrated to match the U.S. economy with the purpose to study how skill-biased technological change (SBTC) and changes in taxation quantitatively account for the increase in inequality from 1980 to 2010. We find that SBTC and taxation decrease account for 48% of the total increase in the income Gini coefficient. In particular, we conclude that SBTC alone accounted for 42% of the overall increase in income inequality, while changes in the progressivity of the income tax schedule alone accounted for 5.7%.

scholarly journals GROWTH AND WELFARE EFFECTS OF MACROPRUDENTIAL REGULATION

2018 ◽  
Vol 23 (8) ◽  
pp. 3140-3162 ◽  
Author(s):  
Pierre-Richard Agénor
Keyword(s):  
Systemic Risk ◽  
Overlapping Generations ◽  
Welfare Effects ◽  
Financial Supervision ◽  
Overlapping Generations Model ◽  
Macroprudential Regulation ◽  
Bank Monitoring ◽  
Investment Projects ◽  
Optimal Monitoring ◽  
Reserve Ratio

This paper studies the growth and welfare effects of macroprudential regulation in an overlapping generations model of endogenous growth with banking and agency costs. Indivisible investment projects combine with informational imperfections to create a double moral hazard problem à la Holmström–Tirole and a role for bank monitoring. When the optimal monitoring intensity is endogenously determined, an increase in the required reserve ratio (motivated by systemic risk considerations) has conflicting effects on investment and growth. On one hand, requiring banks to put away a fraction of the deposits that they receive reduces the supply of loanable funds. On the other, a higher required ratio raises incentives to save and mitigates banks' incentives to monitor, thereby lowering monitoring costs and freeing up resources to increase lending. In addition, it may mitigate the systemic risk externality associated with excessive leverage. This trade-off can be internalized by choosing the required reserve ratio that maximizes growth and welfare. However, the risk of disintermediation means that in practice financial supervision may also need to be strengthened, and the perimeter of regulation broadened, if the optimal ratio is relatively high.

scholarly journals Sharing High Growth across Generations: Pensions and Demographic Transition in China

2015 ◽  
Vol 7 (2) ◽  
pp. 1-39 ◽  
Author(s):  
Zheng Song ◽  
Kjetil Storesletten ◽  
Yikai Wang ◽  
Fabrizio Zilibotti
Keyword(s):  
Emerging Economies ◽  
Overlapping Generations ◽  
Current System ◽  
High Growth ◽  
Future Generations ◽  
Financial Sustainability ◽  
Welfare Gains ◽  
Overlapping Generations Model ◽  
Intergenerational Redistribution ◽  
Endogenous Labor

We analyze intergenerational redistribution in emerging economies with the aid of an overlapping generations model with endogenous labor supply. Growth is initially high but declines over time. A version of the model calibrated to China is used to analyze the welfare effects of alternative pension reforms. Although a reform of the current system is necessary to achieve financial sustainability, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations. (JEL E13, H55, J11, O11, O15, P24, P36)

Supply-side Economics in the People's Republic of China's Regional Context: A Quantitative Investigation of Its VAT Reform

2008 ◽  
Vol 7 (2) ◽  
pp. 96-121 ◽  
Author(s):  
Fan Zhai ◽  
Jianwu He
Keyword(s):  
Overlapping Generations ◽  
Value Added ◽  
Welfare Effects ◽  
Supply Side ◽  
Welfare Gains ◽  
Quantitative Investigation ◽  
Announcement Effects ◽  
Republic Of China ◽  
Regional Impacts ◽  
National Implementation

The People's Republic of China (PRC) has now decided to shift its value-added tax (VAT) from production-based to consumption-based. This transition is currently piloted in the three provinces of the northeast PRC, and is expected to be extended to the whole country in the coming 2 or 3 years. Using a two-region dynamic general equilibrium model with overlapping generations, this paper investigates the macroeconomic and welfare effects of the VAT transition in PRC. The distribution effects between generations are also analyzed to get a sense of public opinion toward the reform. We put special emphasis on the pace of reform by analyzing the pre-announcement effects and the inter-regional impacts of tax reform that began in one pilot region. The simulation results suggest large welfare gains from the VAT transition. However, the pilot reform in the northeast provinces, which delays the national implementation of consumption-based VAT, would involve substantial transitional costs for the rest of the PRC.

scholarly journals DEALING WITH UNDOCUMENTED IMMIGRANTS: THE WELFARE EFFECTS OF AMNESTIES AND DEPORTATIONS

2017 ◽  
Vol 83 (4) ◽  
pp. 445-492 ◽  
Author(s):  
Joël Machado
Keyword(s):  
Undocumented Immigrants ◽  
Overlapping Generations ◽  
Migration Policy ◽  
The United States ◽  
Welfare Effects ◽  
Government Budget ◽  
Overlapping Generations Model ◽  
Wage Effects ◽  
The Government ◽  
The Impact

Abstract:The effects on agents’ welfare of two different policies dealing with undocumented immigrants, amnesties and deportations, are assessed. I develop a two-period overlapping generations model which accounts for the ex-ante production by undocumented workers and their impact on the government budget. Additional channels, such as the discrimination on the labor market and a different productivity of regularized workers are discussed. The impact of a migration policy depends on the wage effects of the legalized/deported workers and their net fiscal contribution. The calibration of the model for the United States in 2014 allows to disentangle the channels at work. Overall, the impact of the two policies on natives’ welfare is limited (between −0.1% and +0.15%). Retired agents benefit from an amnesty and are harmed by a deportation. The effect on workers is ambiguous and depends on the wage and fiscal effects in addition to the change in the returns on savings.

Financial Innovation and Asset Price Volatility

2012 ◽  
Vol 102 (3) ◽  
pp. 147-151 ◽  
Author(s):  
Felix Kubler ◽  
Karl Schmedders
Keyword(s):  
Incomplete Markets ◽  
Overlapping Generations ◽  
Wealth Distribution ◽  
Asset Price ◽  
Price Volatility ◽  
Heterogeneous Beliefs ◽  
Generational Cohort ◽  
Complete Markets ◽  
Overlapping Generations Model ◽  
Financial Innovations

We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the economy and thus would like to make bets against each other. In the incomplete-markets economy, agents cannot make such bets. Asset price volatility is very small. The situation changes dramatically when markets are completed through financial innovations as the set of available securities now allows agents with different beliefs to place bets against each other. Wealth shifts across agents and generations. Such changes in the wealth distribution lead to substantial asset price volatility.

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