Search Results

(refine search)

SORT BY: PREVIOUS / NEXT

All:
Title:
Author:
Abstract:
Keywords:

+ Add Search Parameter

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty
Wen, Yi; Chien, YiLi (2021-12-29)
We use an analytically tractable, heterogeneous-agent incomplete-markets model to show that the Ramsey planner’s decision to finance stochastic public expenditures implies a departure from tax smoothing and an endogeneous mean-reverting force to support positive debt growth despite the government’s precautionary saving motives. Specifically, the government’s attempt to balance the competing incentives between its own precautionary saving (tax smoothing) and households’ precautionary saving (individual consumption smoothing)—even at the cost of extra tax distortion—implies an ...
Working Papers , Paper 2019-038

Working Paper
Time-Inconsistent Optimal Quantity of Debt
Wen, Yi; Chien, YiLi (2020-10-29)
A key feature of the infinite-horizon heterogeneous-agents incomplete-markets (Inf-HAIM) framework is that the equilibrium interest rate of public debt lies below the time discount rate (regardless of capital). This happens because of a positive liquidity premium on asset returns due to imperfect risk sharing. This fundamental property of standard Inf-HAIM models, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent---because the planner has a dominate incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk ...
Working Papers , Paper 2020-037

Working Paper
Optimal Taxation with Endogenous Default under Incomplete Markets
Pouzo, Demian; Presno, Ignacio (2020-08-20)
How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from incurring future tax distortions that would come along with the service of the debt. On the other hand, default risk gives rise to endogenous credit limits that hinder the government's ability to smooth taxes. We characterize the fiscal policy and show how the option to default alters the near-unit ...
International Finance Discussion Papers , Paper 1297

Working Paper
Approximately Right?: Global v. Local Methods for Open-Economy Models with Incomplete Markets
de Groot, Oliver; Durdu, Bora; Mendoza, Enrique G. (2020-01-17)
Global and local methods are widely used in international macroeconomics to analyze incomplete-markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occasionally binding credit constraint. First-order, second-order, risky steady state and DynareOBC solutions are compared v. fixed-point-iteration global solutions in the time and frequency domains. The solutions differ in key respects, including measures of precautionary savings, cyclical moments, impulse response functions, financial premia and macro responses to credit constraints, and ...
Finance and Economics Discussion Series , Paper 2020-006

Working Paper
Closing Large Open Economy Models
Bodenstein, Martin (2006)
A large class of international business cycle models admits multiple locally isolated deterministic steady states, if the elasticity of substitution between traded goods is sufficiently low. I explore the conditions under which such multiplicity occurs and characterize the dynamic properties in the neighborhood of each steady state. Models with standard incomplete markets, portfolio costs, a debt-elastic interest rate, or an overlapping generations framework allow for multiple steady states, if the model features multiple steady states under financial autarchy. If the excess demand for the ...
International Finance Discussion Papers , Paper 867

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty
Wen, Yi; Chien, YiLi (2020-08-13)
We use an analytically tractable model to show that the Ramsey planner's decisions to finance stochastic public expenditures under uninsurable idiosyncratic risk implies a departure from tax smoothing. In the absence of state-contingent bonds the government's attempt to balance the competing incentives between tax smoothing and individual consumption smoothing---even at the cost of extra tax distortion---implies a bounded stochastic unit root component in optimal taxes. Nonetheless, a sufficiently high average level of public debt to support individuals’ self-insurance position is welfare ...
Working Papers , Paper 2019-038

Working Paper
Capital Income Taxation with Housing
Nakajima, Makoto (2020-01-07)
This paper quantitatively investigates capital income taxation in the general-equilibrium overlap-ping generations model with household heterogeneity and housing. Housing tax policy is found to aﬀect how capital income should be taxed, due to substitution between housing and non-housing capital. Given the existing U.S. preferential tax treatment for owner-occupied housing, the optimal capital income tax rate is close to zero (1%), contrary to the high optimal capital income tax rate found with overlapping generations models without housing. A low capital income tax rate improves welfare by ...
Working Papers , Paper 20-02

Working Paper
Majority Voting: A Quantitative Investigation
Dolmas, Jim; Carroll, Daniel R.; Young, Eric (2015-01-07)
We study the tax systems that arise in a once-and-for-all majority voting equilibrium embedded within a macroeconomic model of inequality. We find that majority voting delivers (i) a small set of outcomes, (ii) zero labor income taxation, and (iii) nearly zero transfers. We find that majority voting, contrary to the literature developed in models without idiosyncratic risk, is quite powerful at restricting outcomes; however, it also delivers predictions inconsistent with observed tax systems.
Working Papers (Old Series) , Paper 1442

Working Paper
Implementing the Modified Golden Rule? Optimal Ramsey Capital Taxation with Incomplete Markets Revisited
Yang, C.C.; Chen, Yunmin; Chien, YiLi (2020-10-01)
What is the prescription of Ramsey capital taxation in the long run? Aiyagari (1995) addressed the question in a heterogeneous-agent incomplete-markets (HAIM) economy, showing that a positive capital tax should be imposed to implement the so-called modified golden rule (MGR). In deriving the MGR result, Aiyagari (1995) implicitly assumed that the multiplier on the resource constraint of the Ramsey problem converges to a finite positive value in the limit. We first show that this implicit assumption has a strong implication for the shadow price of Ramsey taxation in the limit: it must go to ...
Working Papers , Paper 2017-003

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty
Wen, Yi; Chien, YiLi (2022-04-28)
We use an analytically tractable, heterogeneous-agent incomplete-markets model to show that the Ramsey planner's decision to finance stochastic public expenditures implies a departure from tax smoothing and an endogenous mean-reverting force to support positive debt growth despite the government's precautionary saving motives. Specifically, the government's attempt to balance the competing incentives between its own precautionary saving (tax smoothing) and households' precautionary saving (individual consumption smoothing)---even at the cost of extra tax distortion---implies an endogenous, ...
Working Papers , Paper 2019-038

show more (59)

PREVIOUS / NEXT

Fed in Print

Search Results

FILTER BY year

FILTER BY Bank

FILTER BY Series

FILTER BY Content Type

FILTER BY Author

FILTER BY Jel Classification

FILTER BY Keywords