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Working Paper
Inequality in the Welfare Costs of Disinflation
Pugsley, Benjamin; Rubinton, Hannah (2019-12-04)
We use an incomplete markets economy to quantify the distribution of welfare gains and losses of the US "Volcker" disinflation. In the long run households prefer low inflation, but disinflation requires a transition period and a redistribution from net nominal borrowers to net nominal savers. Even with perfectly flexible prices, welfare costs may be significant for households with nominal liabilities. When calibrated to match the micro and macro moments of the early 1980s high inflation environment, almost half of all borrowers (14 percent of all households) would prefer to avoid the ...
Working Papers , Paper 2020-021

Speech
Welcoming Remarks, Book Launch: Shared Prosperity in America’s Communities
Harker, Patrick T. (2016-03-25)
President Patrick T. Harker provides opening remarks at the book launch for Shared Prosperity in America?s Communities, a collection of essays coedited by the Philadelphia Fed?s Community Development Studies & Education Department and the University of Pennsylvania?s Penn Institute for Urban Research. He highlights the importance of engaging in research on inequality and social mobility to promote economic growth.
Speech , Paper 118

Working Paper
Because of Monopolies, Income Inequality Significantly Understates Economic Inequality
Schmitz, James A. (2021-03-09)
In social science research, household income is widely used as a stand-in for, or approximation to, the economic well-being of households. In a parallel way, income-inequality has been employed as a stand-in for inequality of economic well-being, or for brevity, "economic-inequality." But there is a force in market economies, ones with extensive amounts of monopoly, like the United States, which leads income-inequality to understate economic-inequality. This force has not been recognized before and derives from how monopolies behave. Monopolies, of course, raise prices. This reduces the ...
Working Papers , Paper 777

Report
The Rise of US Earnings Inequality: Does the Cycle Drive the Trend?
Violante, Giovanni L.; Heathcote, Jonathan; Perri, Fabrizio (2020-06-04)
We document that declining hours worked are the primary driver of widening inequality in the bottom half of the male labor earnings distribution in the United States over the past 52 years. This decline in hours is heavily concentrated in recessions: hours and earnings at the bottom fall sharply in recessions and do not fully recover in subsequent expansions. Motivated by this evidence, we build a structural model to explore the possibility that recessions cause persistent increases in inequality; that is, that the cycle drives the trend. The model features skill-biased technical change, ...
Staff Report , Paper 604

Working Paper
The Macroeconomic Consequences of Early Childhood Development Policies
Daruich, Diego (2018-10-11)
To study long-run large-scale early childhood policies, this paper incorporates early childhood investments into a standard general-equilibrium (GE) heterogeneous-agent overlapping-generations model. After estimating it using US data, we show that an RCT evaluation of a short-run small-scale early childhood program in the model predicts effects on children's education and income that are similar to the empirical evidence. A long-run large-scale program, however, yields twice as large welfare gains, even after considering GE and taxation effects. Key to this difference is that investing in a ...
Working Papers , Paper 2018-29

Working Paper
Non-Gravity Trade
Vespignani, Joaquin L.; Brueckner, Markus; Long, Ngo Van (2020-05-29)
This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population is educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases, the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education.
Globalization Institute Working Papers , Paper 388

Working Paper
An Assignment Model of Knowledge Diffusion and Income Inequality
Luttmer, Erzo G. J. (2014-09-16)
Randomness in individual discovery tends to spread out productivities in a population, while learning from others keeps productivities together. In combination, these two mechanisms for knowledge accumulation give rise to long-term growth and persistent income inequality. This paper considers a world in which those with more useful knowledge can teach those with less useful knowledge, with competitive markets assigning students to teachers. In equilibrium, students who are able to learn quickly are assigned to teachers with the most productive knowledge. The long-run growth rate of this ...
Working Papers , Paper 715

Working Paper
Macroeconomic Effects of Capital Tax Rate Changes
Bhattarai, Saroj; Lee, Jae Won; Park, Woong Yong; Yang, Choongryul (2020-06-26)
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 ...
Globalization Institute Working Papers , Paper 391

Working Paper
Labor Market Trends and the Changing Value of Time
Karabarbounis, Loukas; Boerma, Job (2019-09-20)
During the past two decades, households experienced increases in their average wages and expenditures alongside with divergent trends in their wages, expenditures, and time allocation. We develop a model with incomplete asset markets and household heterogeneity in market and home technologies and preferences to account for these labor market trends and assess their welfare consequences. Using micro data on expenditures and time use, we identify the sources of heterogeneity across households, document how these sources have changed over time, and perform counterfactual analyses. Given the ...
Working Papers , Paper 763

Discussion Paper
The Capitol Since the Nineteenth Century: Political Polarization and Income Inequality in the United States
Chakrabarti, Rajashri; Mazewski, Matthew (2014-06-23)
Even the most casual observer of American politics knows that today?s Republican and Democratic parties seem to disagree with one another on just about every issue under the sun. Some assume that this divide is merely an inevitable feature of a two-party system, while others reminisce about a golden era of bipartisan cooperation and hold out hope that a spirit of compromise might one day return to Washington. In this post, we present evidence that political polarization?or the trend toward more ideologically distinct and internally homogeneous parties?is not a recent development in the United ...
Liberty Street Economics , Paper 20140623a

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