nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2009‒04‒05
25 papers chosen by
Christian Zimmermann
University of Connecticut

  1. Sources of the Great Moderation: shocks, frictions, or monetary policy? By Zheng Liu; Daniel F. Waggoner; Tao Zha
  2. The taxation of capital returns in overlapping generations economies without Financial assets By Davila, Julio
  3. Tax smoothing in frictional labor markets By David M. Arseneau; Sanjay K. Chugh
  4. Numerical Simulation of Nonoptimal Dynamic Equilibrium Models By Zhigang Feng; Jianjun Miao; Adrian Peralta-Alva; Manual Santos
  5. Inventory accelerator in general equilibrium By Pengfei Wang; Yi Wen
  6. Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model By P. JACOB; G. PEERSMAN
  7. Wage risk and employment risk over the life cycle By Hamish Low; Costas Meghir; Luigi Pistaferri
  8. Growth, Fiscal Policy and the Informal Sector in a Small Open Economy By Pedro, de Mendonça
  9. Learning and Asset-Price Jumps By Ravi Bansal; Ivan Shaliastovich
  10. Product market regulation and market work: a benchmark analysis By Lei Fang; Richard Rogerson
  11. "Pareto Optimal Pro-cyclical Research and Development" By R. Anton Braun; Tomoyuki Nakajima
  12. Monetary policy rules with financial instability By Sofia Bauducco; Ales Bulir; Martin Cihak
  13. Career progression and formal versus on-the-job training By Jerome Adda; Christian Dustmann; Costas Meghir; Jean-Marc Robin
  14. Velocity and Monetary Expansion in a Growing Economy with Interest-Rate Control By Seiya Fujisaki
  15. General Purpose Technologies and their Implications for Schumpeterian Growth and Trade By Petsas, Iordanis
  16. Credit Frictions and Labor Market Dynamics By Atanas Hristov
  17. Entrepreneurial Finance and Non-diversifiable Risk By Hui Chen; Jianjun Miao; Neng Wang
  18. Sustained Comparative Advantage and Semi-Endogenous Growth By Petsas, Iordanis
  19. When Does Labor Scarcity Encourage Innovation? By Daron Acemoglu
  20. Inflation dynamics with labour market matching: assessing alternative specifications By Kai Christoffel; James Costain; Gregory de Walque; Keith Kuester; Tobias Linzert; Stephen Millard; Olivier Pierrard
  21. Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan By HOSONO Kaoru
  22. Macroeconomic Consequences of Alternative Reforms to the Health Insurance System in the U.S. By Zhigang Feng
  23. Why has home ownership fallen among the young? By Jonas D. M. Fisher; Martin Gervais
  24. Brain Drain and Brain Return: Theory and Application to Eastern-Western Europe By Karin Mayr; Giovanni Peri
  25. A Dynamic Explanation of the Crisis of the Welfare State By Christophe Hachon

  1. By: Zheng Liu; Daniel F. Waggoner; Tao Zha
    Abstract: We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the inflation target. The best-fit model—the one with two regimes in shock variances—gives quantitatively different dynamics compared with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate considerably fewer nominal rigidities than the literature suggests. incompl s
    Keywords: regime-switching DSGE, shock variances, inflation target, nominal rigidities, intertemporal capital accumulation shocks, model comparison CL HG2567 A4A5
    Date: 2009
  2. By: Davila, Julio (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE); ---; ---)
    Abstract: I show in this paper that in an overlapping generations economy with production ˆ la Diamond (1970) in which the agents can only save in terms of capital (i.e. with no asset bubbles ˆ la Tirole (1985) or public debt as in Diamond (1965)), there is a period-by- period balanced Þscal policy supporting a steady state allocation that Pareto-improves upon the laissez-faire competitive equilibrium steady state (without having to resort to intergenerational transfers) if there is no Þrst generation or the economy starts there. A transition from the competitive equilibrium steady state to this other allocation is also Pareto-improving if the former is dynamically inefficient, but even in the dynamically effcient case if the elasticity of output to capital is high enough. This intervention allows every subsequent generation to attain, as a competitive equilibrium outcome, the highest utility attainable at a steady state through the existing markets for the consumption good and the production factors. The active Þscal policy consists of taxing (or subsidizing, in the dynamically efficient case) linearly the returns to capital, while balancing the budget period by period through a lump-sum transfer (or tax, respectively) on second period income. This policy does not Þnance any public spending, since there is none in the model. The only purpose of the intervention is to decentralize as a competitive equilibrium the steady state allocation that maximizes the utility of the representative agent among all steady state allocations attainable through the existing markets.
    Keywords: taxation of capital, overlapping generations.
    JEL: E62 E21 E22 H21
    Date: 2008–12
  3. By: David M. Arseneau; Sanjay K. Chugh
    Abstract: We re-examine the optimality of tax smoothing from the point of view of frictional labor markets. Our central result is that whether or not this cornerstone optimal fiscal policy prescription carries over to an environment with labor market frictions depends crucially on the cyclical nature of labor force participation. If the participation rate is exogenous at business-cycle frequencies -- as is typically assumed in the literature -- we show it is not optimal to smooth tax rates on labor income in the face of business-cycle shocks. However, if households do optimize at the participation margin, then tax-smoothing is optimal despite the presence of matching frictions. To understand these results, we develop a concept of general-equilibrium efficiency in search-based environments, which builds on existing (partial-equilibrium) search-efficiency conditions. Using this concept, we develop a notion of search-based labor-market wedges that allows us to trace the source of the sharply-contrasting fiscal policy prescriptions to the value of adjusting participation rates. Our results demonstrate that policy prescriptions can be very sensitive to the cyclical nature of labor-force participation in search-based environments.
    Keywords: Labor market ; Taxation; Labor market frictions, optimal taxation CL HG136 A54
    Date: 2009
  4. By: Zhigang Feng (Department of Economics, University of Miami); Jianjun Miao (Department of Economics, Boston University); Adrian Peralta-Alva (Research Division, Federal Reserve Bank of Saint Louis); Manual Santos (Department of Economics, University of Miami)
    Abstract: In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based upon a convergent operator over an expanded set of state variables. The ï¬xed point of this operator deï¬nes the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.
    Keywords: Heterogeneous agents, taxes, externalities, financial frictions, competitive equilibrium, computation, simulation
    JEL: C6 D5 E2
    Date: 2009–02–28
  5. By: Pengfei Wang; Yi Wen
    Abstract: We develop a general-equilibrium model of inventories with explicit micro-foundations by embedding the production-cost-smoothing motive (e.g., Eichenbaum, AER 1989) into an otherwise standard DSGE model. We show that firms facing idiosyncratic cost shocks have incentives to bunch production and smooth sales by carrying inventories. The optimal inventory target of a firm is derived explicitly. The model is broadly consistent with many of the observed stylized facts of aggregate inventory fluctuations, such as the procyclical inventory investment and the countercyclical inventory-sales ratio. In addition, the model yields novel predictions for the role of inventories in macroeconomic stability: Inventories may not only greatly amplify but also propagate the business cycle. That is, the incentive to accumulate inventories under the cost-smoothing motive can give rise to hump-shaped output dynamics and significantly higher volatility of GDP. Such predictions are in sharp contrast to the implications of the recent general-equilibrium inventory literature (e.g., Khan and Thomas, 2007; and Wen, 2008), which shows that inventory investment induced by traditional mechanisms (e.g., the stockout-avoidance motive and the (S,s) rule) does not increase the variance of aggregate output.
    Keywords: Equilibrium (Economics) ; Business cycles ; Inventories
    Date: 2009
    Abstract: This paper presents empirical evidence on the stochastic driving forces of the US trade balance. In an estimated two-country DSGE model, we .find that investment- specific technology shocks have the strongest impact on the volatility of cyclical trade balance .fluctuations, especially when the shocks are domestic and considered over longer forecast-horizons. At shorter horizons, US and foreign inter-temporal shocks that generate co-movement between consumption and investment, have an impact com- parable to that of the investment-specific technology shocks. In contrast, shocks to US public spending and neutral technology - both forces traditionally used to explain trade balance fluctuations - hardly explain the volatility
    Keywords: US Trade Balance, New Open Economy Macroeconomics, Bayesian Inference, DSGE Estimation
    JEL: C11 F41
    Date: 2008–11
  7. By: Hamish Low (Institute for Fiscal Studies and Trinity College, Cambridge); Costas Meghir (Institute for Fiscal Studies and University College London); Luigi Pistaferri (Institute for Fiscal Studies and Stanford University)
    Abstract: <p><p>We specify a structural life-cycle model of consumption, labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects. The sources of risk are shocks to productivity, job destruction, the process of job arrival when employed and unemployed and match level heterogeneity. Our model allows for four main social insurance programmes. In contrast to simpler models that attribute all income fluctuations to shocks, our framework allows us to disentangle the effects of the shocks from the responses to these shocks. Estimates of productivity risk, once we control for employment risk and for individual labour supply choices, are substantially lower than estimates that attribute all wage variation to productivity risk. Increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving. Increases in employment risk have large effects on output and, primarily through this channel, affect welfare. The welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides (partial) insurance against employment risk and no insurance against persistent shocks. </p></p>
    Keywords: Uncertainty, life-cycle models, unemployment, precautionary savings
    JEL: D91 H31 J64
    Date: 2008–09
  8. By: Pedro, de Mendonça
    Abstract: We discuss the implications of informality on growth and fiscal policy by considering an informal sector based on low tech firms, in an open economy model of endogenous growth, where labour supply is elastic and increasing returns arise from public spending. We allow for both labour and capital to allocate between sectors and examine the dynamic and policy issues that arise in an economy, where long run outcomes are still dominated by formal activities, but long macroeconomic transitions arise as a result of informal microeconomic activities, which take advantage of both government taxation and limited fiscalization.
    Keywords: Endogenous Growth Theory; Optimal Fiscal Policy; Informal Sector; Public Capital
    JEL: E62 O41 O17 C61 F43
    Date: 2009–02–05
  9. By: Ravi Bansal; Ivan Shaliastovich
    Abstract: We develop a general equilibrium model in which income and dividends are smooth, but asset prices are subject to large moves (jumps). A prominent feature of the model is that the optimal decision of investors to learn the unobserved state triggers large asset-price jumps. We show that the learning choice is critically determined by preference parameters and the conditional volatility of income process. An important prediction of the model is that income volatility predicts future jumps, while the variation in the level of income does not. We find that indeed in the data large moves in returns are predicted by consumption volatility, but not by the changes in the consumption level. We show that the model can quantitatively capture these novel features of the data.
    JEL: E0 E4 E44 G0 G1 G12
    Date: 2009–03
  10. By: Lei Fang; Richard Rogerson
    Abstract: Recent empirical work finds a negative correlation between product market regulation and aggregate employment. We examine the effect of product market regulations on hours worked in a benchmark aggregate model of time allocation as well as in a standard dynamic model of entry and exit. We find that product market regulations affect time devoted to market work in effectively the same fashion that taxes on labor income or consumption do. In particular, if product market regulations are to affect aggregate market work in this model, the key driving force is the size of income transfers associated with the regulation relative to labor income, and the key propagation mechanism is the labor supply elasticity. We show in a two-sector model that industry-level analysis is of little help in assessing the aggregate effects of product market regulation. incompl s
    Keywords: labor supply, product market regulation, entry barriers CL HG2567 A4A5
    Date: 2009
  11. By: R. Anton Braun (Faculty of Economics, University of Tokyo); Tomoyuki Nakajima (Institute of Economic Research, Kyoto University)
    Abstract: We develop a perfectly competitive endogenous growth model in which R&D is the engine of growth. Our model generates pro-cyclical R&D investment and labor input as a pareto optimal response to technology shocks to the consumption and equipment good sectors. The model also reproduces a variety of facts from the U.S. economy. Growth in R&D capital accounts for 75 percent of the growth rate of GNP and the decline in the relative price of equipment investment. Investment in each sector is pro-cyclical. Our results suggest that equipment shocks may be less important than the previous literature has found. After accounting for the endogenous response of R&D, equipment sector shocks only account for a small fraction of the variance in the growth rate of GNP.
    Date: 2009–03
  12. By: Sofia Bauducco; Ales Bulir; Martin Cihak
    Abstract: To provide a rigorous analysis of monetary policy in the face of financial instability, we extend the standard dynamic stochastic general equilibrium model to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag, and if the central bank has privileged information about credit risk, monetary policy responding instantly to increased credit risk can trade off more output and inflation instability today for a faster return to the trend than a policy that follows the simple Taylor rule. This augmented rule leads in some parameterizations to improved outcomes in terms of long-term welfare, however, the welfare impacts of such a rule appear to be negligible.
    Keywords: DSGE models, financial instability, monetary policy rule.
    JEL: E52 E58 G21
    Date: 2008–12
  13. By: Jerome Adda (Institute for Fiscal Studies and University College London); Christian Dustmann (Institute for Fiscal Studies and University College London); Costas Meghir (Institute for Fiscal Studies and University College London); Jean-Marc Robin (Institute for Fiscal Studies and EUREQua, University of Paris 1)
    Abstract: <p><p>We model the choice of individuals to follow or not apprenticeship training and their subsequent career. We use German administrative data, which records education, labour market transitions and wages to estimate a dynamic discrete choice </p><p></p><p>model of training choice, employment and wage growth. The model allows for returns to experience and tenure, match specific effects, job mobility and search frictions. We show how apprenticeship training affects labour market careers and we quantify its benefits, relative to the overall costs. We then use our model to show how two welfare reforms change life-cycle decisions and human capital accumulation: One is the introduction of an Earned Income Tax Credit in Germany, and the other is a reform to Unemployment Insurance. In both reforms we find very significant impacts of the policy on training choices and on the value of realized matches, demonstrating the importance of considering such longer term implications.</p></p>
    Date: 2009–02
  14. By: Seiya Fujisaki (Graduate School of Economics, Osaka University)
    Abstract: We analyze the income velocity of money in an endogenous growth model with an interest-rate control rule and a cash-in-advance (CIA) constraint. We show that the long-term relationship between the income velocity of money and the nominal growth rate of money supply depends not only on the form of the CIA constraint but also on the central bankfs stance of interest-rate control rule.
    Keywords: velocity, an interest-rate control, endogenous growth, cash-in-advance constraint
    JEL: O42 E52
    Date: 2009–03
  15. By: Petsas, Iordanis
    Abstract: General purpose technologies (GPTs) are drastic innovations, such as electrification, the transistor, and the Internet, that are characterized by the pervasiveness in use, innovational complementarities, and technological dynamism. The model develops a two-country (Home and Foreign) dynamic general equilibrium framework and incorporates general purpose technology diffusion within Home that exhibits endogenous Schumpeterian growth. The model studies the effects of the diffusion of the general purpose technology on the pattern of trade and Home’s relative wage. Based on specific assumptions, the adoption of a GPT by a particular industry generates an increase in the productivity of manufacturing workers at Home. By assumption, the diffusion of a GPT across industries is governed by S-curve dynamics, and the diffusion of the GPT within an industry at Home is considered exogenous. The model analyzes the long-run and transitional dynamic effects of a new GPT on trade patterns, product cycles and (transitional) divergence in per-capita growth rates between the two countries.
    Keywords: General purpose technologies, Schumpeterian growth, comparative advantage, scale effects, R&D races.
    JEL: L2 F10 O3 O4 L1
    Date: 2009–03–15
  16. By: Atanas Hristov
    Abstract: We outline the case for credit frictions and a demand side aspect to labor market fluctuations. To illustrate the above proposition, we present a simple framework to analyze the joint dependence between a labor search problem in the labor market and a costly state verification problem in the credit market in the presence of price rigidities. Credit market imperfections amplify volatility of labor market variables to both supply and demand shocks, but to a much higher extent to demand shocks under rigid prices. The reason is that demand disturbances provide for a strong incentive to demand-constrained firms to adjust production and thereby labor factor.
    Keywords: Credit and search frictions, unemployment, monetary policy
    JEL: J64 G24 E51
    Date: 2009
  17. By: Hui Chen; Jianjun Miao; Neng Wang
    Abstract: Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incomplete markets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs' interdependent consumption, portfolio allocation, financing, investment, and business exit decisions. The optimal capital structure is determined by a generalized tradeoff model where leverage via risky non-recourse debt provides significant diversification benefits. More risk-averse entrepreneurs default earlier, but also choose higher leverage, even though leverage makes his equity more risky. Non-diversified entrepreneurs demand both systematic and idiosyncratic risk premium. Cash-out option and external equity further improve diversification and raise the entrepreneur’s valuation of the firm. Finally, entrepreneurial risk aversion can overturn the risk-shifting incentives induced by risky debt.
    JEL: E2 G11 G31 G32
    Date: 2009–04
  18. By: Petsas, Iordanis
    Abstract: This paper constructs a two-country (Home and Foreign) general equilibrium model of Schumpeterian growth without scale effects. The scale effects property is removed by introducing a distinct specification in the knowledge production function which generates semi-endogenous growth. In this model of semi-endogenous growth, an increase in the rate of population growth rate raises Home’s relative wage and lowers its range of goods exported to Foreign. An increase in the size of innovations increases Home’s relative wage but with an ambiguous effect on its comparative advantage. The model generates a unique steady-state equilibrium in which there is complete specialization in both goods and R&D production within each country.
    Keywords: Comparative advantage; Trade; Schumpeterian growth; Scale effects; R&D races.
    JEL: F0 O30 O10 O40
    Date: 2009–01
  19. By: Daron Acemoglu
    Abstract: This paper studies the conditions under which the scarcity of a factor (in particular, labor) encourages technological progress and technology adoption. In standard endogenous growth models, which feature a strong scale effect, an increase in the supply of labor encourages technological progress. In contrast, the famous Habakkuk hypothesis in economic history claims that technological progress was more rapid in 19th-century United States than in Britain because of labor scarcity in the former country. Similar ideas are often suggested as possible reasons for why high wages might have encouraged rapid adoption of certain technologies in continental Europe over the past several decades, and as a potential reason for why environmental regulations can spur more rapid innovation. I present a general framework for the analysis of these questions. I define technology as strongly labor saving if the aggregate production function of the economy exhibits decreasing differences in the appropriate index of technology, theta, and labor. Conversely, technology is strongly labor complementary if the production function exhibits increasing differences in theta and labor. The main result of the paper shows that labor scarcity will encourage technological advances if technology is strongly labor saving. In contrast, labor scarcity will discourage technological advances if technology is strongly labor complementary. I provide examples of environments in which technology can be strongly labor saving and also show that such a result is not possible in certain canonical macroeconomic models. These results clarify the conditions under which labor scarcity and high wages encourage technological advances and the reason why such results were obtained or conjectured in certain settings, but do not always apply in many models used in the growth literature.
    JEL: C65 O30 O31 O33
    Date: 2009–03
  20. By: Kai Christoffel; James Costain; Gregory de Walque; Keith Kuester; Tobias Linzert; Stephen Millard; Olivier Pierrard
    Abstract: This paper reviews recent approaches to modeling the labour market and assesses their implications for inflation dynamics through both their effect on marginal cost and on price-setting behavior. In a search and matching environment, we consider the following modeling setups: right-to-manage bargaining vs. efficient bargaining, wage stickiness in new and existing matches, interactions at the firm level between price and wage-setting, alternative forms of hiring frictions, search on-the-job and endogenous job separation. We find that most specifications imply too little real rigidity and, so, too volatile inflation. Models with wage stickiness and right-to-manage bargaining or with firm-specific labour emerge as the most promising candidates.
    Keywords: Labor market ; Business cycles; Inflation Dynamics, Labour Market, Business Cycle, Real Rigidities.
    Date: 2009
  21. By: HOSONO Kaoru
    Abstract: Using a dynamic general equilibrium model of firm dynamics that incorporates financial intermediation costs, we quantify the degree to which the deterioration in the health of banks during the Japanese banking crisis had an impact on aggregate productivity through firm dynamics. We find that the deterioration of bank health accounts for about 20 percent to 30 percent of the actual decline in the de-trended TFP during the crisis period (1996-2002). Our results suggest that differential impacts of financial intermediation costs between more and less productive firms or between entrants and incumbents are essential to quantitatively assess the aggregate consequences of financial crises.
    Date: 2009–04
  22. By: Zhigang Feng (Department of Economics, University of Miami)
    Abstract: This paper examines the macroeconomic and welfare implications of alternative re- forms to the U.S. health insurance system. In particular, I study the effect of the expansion of Medicare to the entire population, the expansion of Medicaid, an individ- ual mandate, the removal of the tax break to purchase group insurance and providing a refundable tax credit for insurance purchases. To do so, I develop a stochastic OLG model with heterogenous agents facing uncertain health shocks. In this model individ- uals make optimal labor supply, health insurance, and medical usage decisions. Since buying insurance is endogenous, my model captures how the reforms may affect the characteristics of the insured as well as health insurance premiums. I use the Medi- cal Expenditure Panel Survey to calibrate the model and succeed in closely matching the current pattern of health expenditure and insurance demand as observed in the data. Numerical simulations indicate that reforming the health insurance system has a quantitatively relevant impact on the number of uninsured, hours worked, and welfare.
    Keywords: Health insurance reform, Heterogeneous agent model, Welfare analysis
    JEL: E21 E62 I10
    Date: 2009–01–12
  23. By: Jonas D. M. Fisher; Martin Gervais
    Abstract: We document that home ownership of households with "heads" aged 25 - 44 years fell substantially between 1980 and 2000 and recovered only partially during the 2001-2005 housing boom. The 1980-2000 decline in young home ownership occurred as improvements in mortgage opportunities made it easier to purchase a home. This paper uses an equilibrium life-cycle model calibrated to micro and macro evidence to understand why young home ownership fell over a period when it became easier to own a home. Our findings indicate that a trend toward marrying later and the increase in household earnings risk that occurred after 1980 account for 3/5 to 4/5 of the decline in young home ownership. incompl s
    Keywords: Housing, home ownership, tenure choice, first-time home-buyers, marriage, income risk CL HG2567 C4A8
    Date: 2009
  24. By: Karin Mayr (Johannes Kepler University, Linz); Giovanni Peri (University of California, Davis, CESifo and NBER)
    Abstract: Recent empirical evidence seems to show that temporary migration is a widespread phenomenon, especially among highly skilled workers who return to their countries of origin when these begin to grow. This paper develops a simple, tractable overlapping generations model that provides a rationale for return migration and predicts who will migrate and who returns among agents with heterogeneous abilities. The model also incorporates the interaction between the migration decision and schooling: the possibility of migrating, albeit temporarily, to a country with high returns to skills produces positive schooling incentive effects. We use parameter values from the literature and data on return migration to simulate the model for the Eastern-Western European case. We then quantify the effects that increased openness (to migrants) would have on human capital and wages in Eastern Europe. We find that, for plausible values of the parameters, the possibility of return migration combined with the education incentive channel reverses the brain drain into a significant brain gain for Eastern Europe.
    Date: 2009–04
  25. By: Christophe Hachon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Although the crisis of the Welfare State has been evoked for quite a long time, figures show that such a phenomenon has arisen only recently. Furthermore, it is not a common feature in all developed countries. This paper aims at explaining these two empirical facts. We use an overlapping generations model in which agents decide to educate themselves or not endogenously. Furthermore, at each date, the working population vote on the size of a redistributive policy. Firstly, we show that the share of the educated population can be the engine of the crisis of the Welfare State. Moreover, our paper emphasizes that the expectations of agents about the size of redistributive policies, can explain the timing differential in the crisis of the Welfare State between developed countries.
    Keywords: Welfare State ; Indeterminacy ; Education ; Redistribution
    Date: 2009–03–26

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