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Keywords:life cycle OR Life cycle OR Life Cycle 

Working Paper
Fertility Choice in a Life Cycle Model with Idiosyncratic Uninsurable Earnings Risk

This paper studies the link between rising income uncertainty and household fertility patterns in an Aiyagari-Bewley-Huggett framework augmented to include fertility decisions and infertility risk. Building on Becker and Tomes (1976), I model fertility decisions as sequential, irreversible choices over the number of children, accompanied by parental choices of time and money invested toward improving children's quality. The calibrated model is used to quantify the contribution of earnings uncertainty to the changes in the key fertility indicators between steady states. I show that realistic ...
Finance and Economics Discussion Series , Paper 2014-32

Working Paper
Optimal Public Debt with Life Cycle Motives

Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the ...
Finance and Economics Discussion Series , Paper 2018-028

Working Paper
Housing over time and over the life cycle: a structural estimation

Supersedes Working Paper 09-7. We estimate a structural model of optimal life-cycle housing and nonhousing consumption in the presence of labor income and house price uncertainties. The model postulates constant elasticity of substitution between housing service and nonhousing consumption and explicitly incorporates a housing adjustment cost. Our estimation fits the cross-sectional and time-series household wealth and housing profies from the Panel Study of Income Dynamics (1984 to 2005) reasonably well and suggests an intratemporal elasticity of substitution between housing and nonhousing ...
Working Papers , Paper 15-4

Working Paper
Credit card utilization and consumption over the life cycle and business cycle

The revolving credit available to consumers changes substantially over the business cycle, life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20?40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates ...
Working Papers , Paper 17-14

Labor-dependent capital income taxation that encourages work and saving

This paper proposes a simple mechanism of capital taxation that is negatively correlated with labor supply. Using a life-cycle model of heterogeneous agents, I show that this tax scheme provides a strong work incentive when households possess large assets and high productivity later in the life cycle, when they would otherwise work less. This reformed system also adds to the saving motive and raises aggregate capital. Moreover, the increased economic activities expand the tax base, and the revenue-neutral reform results in a lower average tax rate. My findings show that this tax scheme ...
Staff Reports , Paper 435

Working Paper
Family and Government Insurance: Wage, Earnings, and Income Risks in the Netherlands and the U.S.

We document new facts about risk in male wages and earnings, household earnings, and pre- and post-tax income in the Netherlands and the United States. We find that, in both countries, earnings display important deviations from the typical assumptions of linearity and normality. Individual-level male wage and earnings risk is relatively high at the beginning and end of the working life, and for those in the lower and upper parts of the income distribution. Hours are the main driver of the negative skewness and, to a lesser extent, the high kurtosis of earnings changes. Even though we find no ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 42

Working Paper
Personal Bankruptcy as a Real Option

We provide a novel explanation to the longstanding puzzle of the ?missing bankruptcy ?lings.? Even though a household with a negative net worth will receive contemporaneous bene?t from bankruptcy, there may be greater insurance value from delaying the ?ling. Household bankruptcy is thus an American-style put option, which is not necessarily exercised even if the option is "in the money." Based on the value functions in the household?s dynamic programming problem, we formulate the value of the bankruptcy option as well as the exercise price. We estimate a life-cycle model in which households ...
Working Papers , Paper 19-46

Working Paper
Capital Income Taxation with Housing

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
Home Equity in Retirement

Retired homeowners dissave more slowly than renters, which suggests that homeownership a?ects retirees? saving decisions. We investigate empirically and theoretically the life-cycle patterns of homeownership, housing and nonhousing assets in retirement. Using an estimated structural model of saving and housing decisions, we ?nd, ?rst, that homeowners dissave slowly because they prefer to stay in their house as long as possible but cannot easily borrow against it. Second, the 1996-2006 housing boom signi?cantly increased homeowners? assets. These channels are quantitatively signi?cant; without ...
Working Papers , Paper 19-50

Working Paper
Rushing into American Dream? House Prices, Timing of Homeownership, and Adjustment of Consumer Credit

In this paper we use a large panel of individuals from Consumer Credit Panel dataset to study the timing of homeownership as a function of credit constraints and expectations of future house price. Our panel data allows us to track individuals over time and we model the transition probability of their first home purchase. We find that in MSAs with highest quartile house price growth, the median individual become homeowners earlier by 5 years in their lifecycle compared to MSAs with lowest quartile house price growth. The result suggests that the effect of expectation dominates the effect of ...
Working Paper Series , Paper WP-2013-13


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