nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2005‒06‒05
eight papers chosen by
Christian Zimmermann
University of Connecticut

  2. What Triggers Early Retirement? Results from Swiss Pension Funds By Monika Bütler; Olivia Huguenin; Federica Teppa
  3. Understanding Bequest Motives An Empirical Analysis of Intergenerational Transfers By Günther Fink; Silvia Redaelli
  4. Optimal unemployment insurance design: time limits, monitoring, or workfare? By Fredriksson, Peter; Holmlund, Bertil
  5. Rare Events and the Equity Premium By Robert J. Barro
  6. Wealth distribution, endogenous fiscal policy and growth: status-seeking implications. By Thi Kim Cuong PHAM
  7. Environment in an Overlapping Generations Economy with Endogenous Labor Supply : a Dynamic Analysis. By Thomas SEEGMULLER; Alban VERCHÈRE
  8. Postponing the Legal Retirement Age By Juan Antonio Lacomba; Francisco Miguel Lagos

  1. By: Carmen Garrido Ruiz
    Abstract: Is there an aggregate technical shock? Is the growth rate of TFP a positive constant buffeted by random shocks? We use data on the Spanish economy, disaggregated by sector and region, from two different data sets to investigate the nature of technical change. Our results show that technical change is sector-specific, and operates at the national level. We also find that TFP growth rates are far from being constant. Thus, our findings contradict the basic assumption underlying the model of "Kapital, Labour and exogenous Aggregate TFP". We discuss the role of embodied technical change as a source of observed TFP growth. We also find no role for “broad externalities” as a determinant of TFP growth.
    Date: 2005–05
  2. By: Monika Bütler; Olivia Huguenin; Federica Teppa
    Abstract: Early retirement is predominantly considered as the result of incentives set by social security and the tax system. But people seem to retire early even in the absence of such distortions as the Swiss example demonstrates. We look for determinants of early retirement, in particular the role of lifetime income and family status, using individual data from a selection of Swiss pension funds. Our findings suggest that affordability is a key determinant in retirement decisions: More affluent men, and — to a much smaller extent — women, tend to leave the work force earlier. The fact that early retirement has become much more prevalent in the last 15 years is another indicator for the importance of affordability as Switzerland's funded pension system has matured over that period leading to higher effective replacement rates. We also find sizeable differences in retirement behavior across marital status. These may be explained by a constrained rational choice based on differential mortality and the desire of couples to coordinate their entry into retirement. Jel–Classification: D91, H55
    Keywords: Occupational Pension; Retirement decision; Duration models
    JEL: D91 H55
    Date: 2005–05
  3. By: Günther Fink; Silvia Redaelli
    Abstract: This paper analyzes one of the major factors underlying old agents' saving and consumption decisions - the individual intentions to leave bequests. We present two simple model of altruistically motivated bequests and use data from the Health and Retirement Study (HRS) to confront the theoretical implications of the two model with empirical evidence from the survey data provided. The main findings from the data are the following: First, there is strong evidence against a strictly accidental, and in favor of intentional bequest motive for a significant share of agents aged sixty and older. Second, we find the probability to leave an inheritance is mainly driven by wealth and individual characteristics such as health, education, race and religion, but not directly dependent on the heirs' wellbeing, contradicting the standard altruistic model of bequest.
    Keywords: Bequest; Altruism
    JEL: D12 D64
    Date: 2005–05
  4. By: Fredriksson, Peter (IFAU - Institute for Labour Market Policy Evaluation); Holmlund, Bertil (Uppsala University)
    Abstract: This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity in preferences for leisure. The numerical analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems.
    Keywords: Unemployment insurance; search equilibrium; time limits; monitoring and sanctions; workfare
    JEL: J64 J68
    Date: 2005–05–12
  5. By: Robert J. Barro
    Abstract: The allowance for low-probability disasters, suggested by Rietz (1988), explains a lot of puzzles related to asset returns and consumption. These puzzles include the high equity premium, the low risk-free rate, the volatility of stock returns, and the low values of typical macro-econometric estimates of the intertemporal elasticity of substitution for consumption. Another mystery that may be resolved is why expected real interest rates were low in the United States during major wars, such as World War II. This resolution works even though price-earnings ratios tended also to be low during the wars. This approach achieves these explanations while maintaining the tractable framework of a representative agent, time-additive and iso-elastic preferences, complete markets, and i.i.d. shocks to productivity growth. Perhaps just as puzzling as the high equity premium is why Rietz's framework has not been taken more seriously by researchers in macroeconomics and finance.
    Date: 2005–05
  6. By: Thi Kim Cuong PHAM
    Abstract: We investigate the wealth distribution and endogenous fiscal policy in a two-classes growth model in which individuals exhibit a desire for social status. The latter is in- creasing with individual wealth and decreasing with the average level of the society. First, we show that status seeking is crucial in determining the long-run wealth dis- tribution: agents with stronger status motive end up holding a higher level of wealth. Second, a higher inequality can be associated with a higher growth if it is due to a stronger incentive to accumulate wealth of one class of agents. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and raise welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of status motive of majoritarian class may lead to a reduced political equilibrium growth.
    Keywords: Individual welfare; endogenous growth; endogenous Þscal policy; status seeking; wealth distribution
    JEL: D31 H31 H50 O41
    Date: 2004
  7. By: Thomas SEEGMULLER; Alban VERCHÈRE
    Abstract: We consider an overlapping generations model with environment, where we introduce an elastic labor supply. In this framework, consumers have to choose between consumption, environmental quality and leisure. We establish that several steady states can coexist, even under a Cobb-Douglas technology, and we put in evidence a non monotonic relationship between pollution and per capita income, as suggested by the Environmental Kuznets Curve. Moreover studying local dynamics, we show the existence of deterministic cycles and endogenous fluctuations due to self-fulfilling expectations. In contrast to previous results, the occurrence of such fluctuations does not require a high emission rate of pollution. Finally, we discuss some welfare and policy implications of our results. Especially, we show that a government which would reduce pollution emissions can face a trade-off between an increase of steady state welfare and an intergenerational welfare inequality due to indeterminacy.
    Keywords: Environment, Labor supply, Overlapping generations, Multiplicity of steady states, Environmental Kuznets Curve, Indeterminacy, Endogenous cycles.
    JEL: C62 E32 Q20
    Date: 2005
  8. By: Juan Antonio Lacomba (Department of Economic Theory and Economic History, University of Granada); Francisco Miguel Lagos (Department of Economic Theory and Economic History, University of Granada)
    Abstract: This paper analyzes the reform of the pensionable age as an answer to the future financing problems of public pension systems. We use a two-staged model where, firstly, the government decides the redistribution level of the pension system, and, secondly, individuals face a voting process on the legal retirement age. Our results suggest that an increase in the re-distributive character of the system could lead to a larger social consensus to postpone the legal retirement age. Surprisingly, it could be the case that the richest people would support more redistribution if that implies to postpone the pensionable age.
    Keywords: Legal retirement age, pension benefits, redistribution level
    JEL: D72 D91 H55
    Date: 2005–06–01

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