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Dynamic optimal taxation with private information
We study dynamic optimal taxation in a class of economies with private information. Constrained optimal allocations in these environments are complicated and history-dependent. Yet, we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems. The market structure in these economies is similar to that in Bewley (1986): agents supply labor and trade risk-free claims to future consumption, subject to a budget constraint and a debt limit. Optimal taxes are conditioned only on two observable characteristicsan agents accumulated stock of claims, or wealth, and her current labour incomeand they are not additively separable in these variables. The marginal wealth tax is decreasing in labour income and its expected value is generally positive. The marginal labour income tax is decreasing in wealth.
AUTHORS: Albanesi, Stefania; Sleet, Christopher
How severe is the time-inconsistency problem in monetary policy?
This study analyzes two monetary economies, a cash-credit good model and a limited-participation model. In these models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. The study defines and analyzes Markov equilibrium in these economies and shows that there is no time-inconsistency problem for a wide range of parameter values.
AUTHORS: Christiano, Lawrence J.; Albanesi, Stefania; Chari, V. V.
Expectation traps and monetary policy
Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show that, in a standard equilibrium model, absence of commitment leads to multiple equilibria, or expectation traps. In these traps, expectations of high or low inflation lead the public to take defensive actions which then make it optimal for the monetary authority to validate those expectations. We find support in cross-country evidence for key implications of the model.
AUTHORS: Albanesi, Stefania; Christiano, Lawrence J.; V.V.Chari
Expectation traps and monetary policy
Why is inflation persistently high in some periods and low in others? The reason may be absence of commitment in monetary policy. In a standard model, absence of commitment leads to multiple equilibria, or expectation traps, even without trigger strategies. In these traps, expectations of high or low inflation lead the public to take defensive actions, which then make accommodating those expectations the optimal monetary policy. Under commitment, the equilibrium is unique and the inflation rate is low on average. This analysis suggests that institutions which promote commitment can prevent high inflation episodes from recurring.
AUTHORS: Albanesi, Stefania; Christiano, Lawrence J.; Chari, V. V.
Gender roles and medical progress
Maternal mortality was the second-leading cause of death for women in childbearing years up until the mid-1930s in the United States. For each death, twenty times as many mothers were estimated to suffer pregnancy-related conditions, often leading to severe and prolonged disablement. Poor maternal health made it particularly hard for mothers to engage in market work. Between 1930 and 1960, there was a remarkable reduction in maternal mortality and morbidity, thanks to medical advances. We argue that these medical advances, by enabling women to reconcile work and motherhood, were essential for the joint rise in married women?s labor force participation and fertility over this period. We also show that the diffusion of infant formula played an important auxiliary role.
AUTHORS: Albanesi, Stefania; Olivetti, Claudia
Insolvency after the 2005 bankruptcy reform
Using a comprehensive panel dataset on U.S. households, we study the effects of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the most substantive reform of personal bankruptcy in the United States since the Bankruptcy Reform Act of 1978. The 2005 legislation introduced a means test based on income to establish eligibility for Chapter 7 bankruptcy and increased the administrative requirements to file, leading to a rise in the opportunity cost and, especially, the financial cost of filing for bankruptcy. We study the effects of the reform on bankruptcy, insolvency, and foreclosure. We find that the reform caused a permanent drop in the Chapter 7 bankruptcy rate relative to pre-reform levels, owing to the rise in filing costs associated with the reform, which can be interpreted as resulting from liquidity constraints. We find that the decline in bankruptcy filings resulted in a rise in the rate and persistence of insolvency as well as an increase in the rate of foreclosure. We find no evidence of a link between the decline in bankruptcy and a rise in the number of individuals who are current on their debt. We document that these effects are concentrated at the bottom of the income distribution, suggesting that the income means tests introduced by BAPCPA did not serve as an effective screening device. We show that insolvency is associated with worse financial outcomes than bankruptcy, as insolvent individuals have less access to new lines of credit and display lower credit scores than individuals who file for bankruptcy. Since bankruptcy filings declined much more for low-income individuals, our findings suggest that, for this group, BAPCPA may have removed an important form of relief from financial distress.
AUTHORS: Nosal, Jaromir B.; Albanesi, Stefania
Gender and dynamic agency: theory and evidence on the compensation of top executives
We document three new facts about gender differences in executive compensation. First, female executives receive a lower share of incentive pay in total compensation relative to males. This difference accounts for 93 percent of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives are more exposed to bad firm performance and less exposed to good firm performance relative to male executives. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the ?managerial power" or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.
AUTHORS: Prados, María José; Albanesi, Stefania; Olivetti, Claudia
The gender unemployment gap
The unemployment gender gap, defined as the difference between female and male unemployment rates, was positive until 1980. This gap virtually disappeared after 1980--except during recessions, when men's unemployment rates always exceed women's. We study the evolution of these gender differences in unemployment from a long-run perspective and over the business cycle. Using a calibrated three-state search model of the labor market, we show that the rise in female labor force attachment and the decline in male attachment can mostly account for the closing of the gender unemployment gap. Evidence from nineteen OECD (Organisation for Economic Co-operation and Development) countries also supports the notion that convergence in attachment is associated with a decline in the gender unemployment gap. At the cyclical frequency, we find that gender differences in industry composition are important in recessions, especially the most recent, but they do not explain gender differences in employment growth during recoveries.
AUTHORS: Albanesi, Stefania; Sahin, Aysegül