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Working Paper
Inequality in the Welfare Costs of Disinflation
Rubinton, Hannah; Pugsley, Benjamin (2021-09-23)
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. 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 and the actual changes in the nominal interest rate and inflation during the Volcker disinflation, nearly 60 percent of all ...
Working Papers , Paper 2020-021

Working Paper
The Politics of Flat Taxes
Dolmas, Jim; Carroll, Daniel R.; Young, Eric R. (2017-09-06)
We study the determination of flat tax systems using a workhorse macroeconomic model of inequality. Our first result is that, despite the multidimensional policy space, equilibrium policies are typically unique (up to a fine grid numerical approximation). The majority voting outcome features (i) zero labor income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) generally low transfers. We discuss the role of three factors?the initial heterogeneity in sources of income, the mobility of income and wealth, and the forward-looking aspect of voting?in ...
Working Papers , Paper 14-42R

Report
Heterogeneous Agent Trade
Waugh, Michael E. (2023-10-18)
This paper studies the implications of household heterogeneity for trade. I develop a model where household heterogeneity is induced via incomplete markets and results in heterogeneous price elasticities. Conditional on exposure to trade, heterogeneous price elasticities imply that different households value price changes differently, and thus rich and poor households experience different gains from trade. I calibrate the model to match bilateral trade flows and micro-facts about household-level expenditure patterns and elasticities. I find gains from trade that are pro-poor and that the ...
Staff Report , Paper 653

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
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
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
Urban Renewal and Inequality: Evidence from Chicago’s Public Housing Demolitions
Almagro, Milena; Chyn, Eric; Stuart, Bryan (2023-09-13)
This paper studies one of the largest spatially targeted redevelopment efforts implemented in the United States: public housing demolitions sponsored by the HOPE VI program. Focusing on Chicago, we study welfare and racial disparities in the impacts of demolitions using a structural model that features a rich set of equilibrium responses. Our results indicate that demolitions had notably heterogeneous effects where welfare decreased for low-income minority households and increased for White households. Counterfactual simulations explore how housing policy mitigates negative effects of ...
Working Papers , Paper 23-19

Working Paper
Monetary Policy and Home Buying Inequality
Ringo, Daniel R. (2023-01-20)
Does monetary policy influence who becomes a home owner? Home purchases by low- and moderate-income households may be particularly sensitive to mortgage interest rates, as these households’ budgets are tighter and they more frequently come up against binding payment-to-income ratio constraints in credit decisions. Exploiting the timing of high-frequency observations of mortgage applicants locking in their interest rates around monetary policy shocks, I find that a 1 percentage point policy-induced increase in mortgage rates lowers the presence of low-income households in the population of ...
Finance and Economics Discussion Series , Paper 2023-006

Working Paper
Bank Branch Access: Evidence from Geolocation Data
Sakong, Jung; Zentefis, Alexander (2023-04-11)
Low-income and Black households are less likely to visit bank branches than high-income and White households, despite the former two groups appearing to rely more on branches as means of bank participation. We assess whether unequal branch access can explain that disparity. We propose a measure of bank branch access based on a gravity model of consumer trips to bank branches, estimated using mobile device geolocation data. Residents have better branch access if branches are closer or have superior qualities that attract more visitors. Because the geolocation data is distorted to protect user ...
Working Paper Series , Paper WP 2023-15

Working Paper
The Effects of Racial Segregation on Intergenerational Mobility: Evidence from Historical Railroad Placement
Chyn, Eric; Haggag, Kareem; Stuart, Bryan (2023-09-05)
This paper provides new evidence on the causal impacts of citywide racial segregation on intergenerational mobility. We use an instrumental variable approach that relies on plausibly exogenous variation in segregation due to the arrangement of railroad tracks in the 19th century. Our analysis finds that higher segregation reduces upward mobility for Black children from households across the income distribution and White children from low-income households. Moreover, segregation lowers academic achievement while increasing incarceration and teenage birth rates. An analysis of mechanisms shows ...
Working Papers , Paper 23-18

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