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Report
The Macroeconomic Dynamics of Labor Market Policies
We develop a dynamic macroeconomic framework with worker heterogeneity, putty-clay adjustment frictions, and firm monopsony power to study the distributional impact of labor market policies over time. Our framework reconciles the well-known tension between low short-run and high long-run elasticities of substitution across inputs of production, especially among workers with different skills within a same education group. We use this framework to evaluate the effects of redistributive policies such as the minimum wage and the Earned Income Tax Credit. We argue that since these policies ...
Working Paper
Macroeconomic Effects of Capital Tax Rate Changes
We study aggregate, distributional and welfare effects of a permanent reduction in the capital tax rate in a quantitative equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects, but is coupled with an increase in wage and income inequality. Moreover, the expansionary aggregate effects are smaller when distortionary labor or consumption tax rates have to increase to finance the capital tax rate cut, driven by effects on labor supply decisions. An extension to a model with heterogeneous households shows that consumption ...
Report
Approximating Transition Dynamics with Discrete Choice
This paper develops a method to analyze policy reforms in environments with discrete choice, such as occupational choice or default. Computing transition paths in these settings is computationally challenging, particularly in models with substantial heterogeneity and many endogenous states. We extend perturbation methods to handle discrete choice by appropriately tracking both intensive-margin changes conditional on discrete choices that are relatively small and extensive-margin changes resulting from a switch in a discrete choice that are relatively large. The method is fast, scalable, and ...