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on Dynamic General Equilibrium |
| By: | Barnett, Richard C; Bhattacharya, Joydeep; Bunzel, Helle |
| Abstract: | Only one of two equilibrium possibilities arise in standard overlapping generation models with dynastic preferences: either the altruistic bequest motive is operative for every generation (in which case, Ricardian equivalence obtains) or it is not, for any generation. This paper introduces cross-generational consumption externalities into a AK model with overlapping generations. It is shown that the model economy does not support a steady-state equilibrium in which inheritances are received and bequests left at every date; hence Ricardian equivalence fails. There does exist, however, out-of-steady state equilibria in which the bequest motive is occasionally operative; i.e., there are `deviant' generations that do not leave a bequest even though they received an inheritance, and vice versa. This is in line with commonly-held beliefs in the United States that the World War II generation is `generous' while the baby boomer generation is `stingy' and out to `spend their kids' inheritance'. The cross-generational consumption externalities are also capable of generating endogenous growth cycles that did not exist otherwise. |
| Keywords: | Ricardian equivalence, bequests, growth cycles, overlapping generations, bequest motive |
| JEL: | E0 |
| Date: | 2008–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12939&r=dge |
| By: | Christophe Hachon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | In this paper we study the macroeconomic impact of a policy which changes the redistributive properties of an unfunded pension system. Using an overlapping generations model with a closed economy and heterogenous agents, we show that a weaker link<br />between contributions and benefits has an impact on the level of capital per capita if and only if there are inequalities of length of life. Furthermore, this policy has positive implications for every agent of the economy if the system has a defined-benefit<br />structure. The tax rate and inequalities decrease, whereas the wealth of each agent increases. However, with a defined-contribution pension system, this policy has a negative impact on every macroeconomic variable except on the wealth of the poorest agents. |
| Keywords: | Inequality; Pension Systems; Redistribution;<br />Capital |
| Date: | 2008–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00279167_v1&r=dge |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg) |
| Abstract: | This paper concerns optimal income taxation and provision of a state-variable public good under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption. Each individual may compare his/her own current consumption with his/her own past consumption as well as with other people’s current and past consumption. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. The extent by which the rule for public provision should be modified depends crucially on the preference elicitation format. |
| Keywords: | Optimal income taxation; asymmetric information; public goods; relative consumption; status; positional goods |
| JEL: | D62 H21 H23 H41 |
| Date: | 2008–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0740&r=dge |
| By: | Andreou Elena; Pelloni Alessandra; Sensier Marianne |
| Abstract: | We provide empirical support for a DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Utilising a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7. |
| JEL: | C32 E32 O42 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0041&r=dge |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This paper concerns optimal income taxation and provision of a state-variable public good under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption. Each individual may compare his/her own current consumption with his/her own past consumption as well as with other people’s current and past consumption. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. The extent by which the rule for public provision should be modified depends crucially on the preference elicitation format.<p> |
| Keywords: | Optimal income taxation; asymmetric information; public goods; relative consumption; status; positional goods. |
| JEL: | D62 H21 H23 H41 |
| Date: | 2008–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0304&r=dge |
| By: | Hugo Gerard (Reserve Bank of Australia); Kristoffer Nimark (Reserve Bank of Australia) |
| Abstract: | This paper combines multivariate density forecasts of output growth, inflation and interest rates from a suite of models. An out-of-sample weighting scheme based on the predictive likelihood as proposed by Eklund and Karlsson (2007) and Andersson and Karlsson (2007) is used to combine the models. Three classes of models are considered: a Bayesian vector autoregression (BVAR), a factor-augmented vector autoregression (FAVAR) and a medium-scale dynamic stochastic general equilibrium (DSGE) model. Using Australian data over the inflation-targeting period, we find that, at short forecast horizons, the Bayesian VAR model is assigned the most weight, while at intermediate and longer horizons the factor model is preferred. The DSGE model is assigned little weight at all horizons, a result that can be attributed to the DSGE model producing density forecasts that are very wide when compared with the actual distribution of observations. While a density forecast evaluation exercise reveals little formal evidence that the optimally combined densities are superior to those from the best-performing individual model, or a simple equal-weighting scheme, this may be a result of the short sample available. |
| Keywords: | density forecasts; combining forecasts; predictive criteria |
| JEL: | C52 C53 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2008-02&r=dge |
| By: | Michael Ben-Gad (Department of Economics, City University, London) |
| Abstract: | In this paper I demonstrate the use of high order general perturbations to analyze policy changes in dynamic economic models. The inclusion of high moments in approximating the behavior of dynamic models is particularly necessary for welfare analysis. I apply the method of general perturbations to the analysis of permanent changes to a flat rate tax on the return to capital in the context of the standard Ramsey optimal growth model. Reliance on simple linearizations or quadratic approximations are adequate for generating impulse responses for the variables of interest or the welfare analysis of small policy changes. However when considering the welfare implications of sizable policy changes, the failure to include higher moments can lead not only to quantitatively serious inaccuracies, but even to spurious welfare reversals. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:0807&r=dge |
| By: | Christophe Hachon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | A growing empirical literature shows that life expectancy depends on the wage level. Using an overlapping generations model with a small open economy, we explain why this result can change the<br />redistributive properties of unfunded pension systems. We use the concept of "net contribution" to measure this redistributivity of pension systems. We show that Beveridgian pension systems remain<br />progressive. However, the poorest do not necessarily benefit the most from pension systems. For Bismarkian pension systems, net contributions are regressive. It means that poor agents pay more<br />for the pension system than they receive from it. Conversely, rich agents receive more from the pension system than they pay for it. For mixed pension systems, it is possible that collected resources are redistributed in favour of the ends of the distribution of wages. |
| Keywords: | Pension system; inequality; length of life; net<br />contribution |
| Date: | 2008–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00279651_v1&r=dge |
| By: | Peter Haan; Victoria Prowse; Arne Uhlendorff |
| Abstract: | In this paper we develop a dynamic structural life-cycle model of labor supply behavior which fully accounts for the effects of income tax and transfers on labor supply incentives. Additionally, the model recognizes the demand side driven rationing risk that might prevent individuals from realizing their optimal labor supply state, resulting in involuntary unemployment. We use this framework to study the employment effects of transforming a traditional welfare state, as is currently in place in Germany, towards a more Anglo-American system in which a large proportion of transfers are paid to the working poor. |
| Keywords: | Life-cycle labor supply, Involuntary unemployment, In-work credits |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp790&r=dge |