Centro de Análisis y Estudios Ríos Pérez
Algunas de las Publicaciones de los Miembros del
CAERP (No todas ni mucho
menos)
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Time-Consistent Public Policy Paul Klein, Per Krusell
y José Víctor Ríos Rull. In this paper,
we study the optimal choice of public expenditures when there
is no way of committing to future policy and "reputational"
mechanisms are not operative. This amounts to confining our
attention to Markov equilibria. The environment is a
neoclassical growth model where consumers derive utility from
a public good. This environment gives rise to a dynamic game
between successive governments and the private sector and
this game is made interesting by the presence of a state
variable: the capital stock. We characterize equilibria in
terms of an intertemporal first-order condition (a
"Generalized Euler Equation", or GEE) for the government and
we use this condition both to gain insight into the nature of
the equilibrium and as a basis for computation. The GEE
reveals how the government optimally trades off tax wedges
over time. It also allows us to discuss in what sense a
current government may be strategically influencing future
governments in their taxation decisions. For a calibrated
economy, we find that when the tax base available to the
government is capital income --an inelastic source of funds
at any moment in time-- the government still refrains from
taxing at high rates in order to smooth distortions over
time. As a result, the economy is far from the mix of public
and private goods that would be optimal in a static context,
but the capital stock and production are high.
Forthcoming in the Review of Economic Studies.
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A Quantitative Theory of Unsecured Consumer Credit with
Risk of Default Satyajit Chatterjee, Dean Corbae, y
Makoto Nakajima y José Víctor Ríos
Rull. We study, theoretically and quantitatively, the
general equilibrium of an economy in which households
smooth consumption by means of both a riskless asset and
unsecured loans with the option to default. The default
option resembles a bankruptcy filing under Chapter 7 of
the U.S. Bankruptcy Code. Competitive financial
intermediaries offer a menu of loan sizes and interest
rates wherein each loan makes zero profits. We prove
existence of a steady-state equilibrium and characterize
the circumstances under which a household defaults on its
loans. We show that our model accounts for the main
statistics regarding bankruptcy and unsecured credit
while matching key macroeconomic aggregates and the
earnings and wealth distributions. We use this model to
address the implications of a recent policy change that
introduces a form of "means-testing" for households
contemplating a Chapter 7 bankruptcy filing. We find that
this policy change yields large welfare
gains. Econometrica, Vol. 75,
No. 6 (November, 2007), 1525-1589 (leading article).
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A Finite-Life Private-Information Theory of Unsecured
Consumer Debt Satyajit Chatterjee, Dean Corbae y
José Víctor Ríos Rull. We present a
theory of unsecured consumer debt that does not rely on
utility costs of default or on enforcement mechanisms
that arise in repeated-interaction settings. The theory
is based on private information about a person's type and
on a person's incentive to signal his type to entities
other than creditors. Specifically, debtors signal their
low-risk status to insurers by avoiding default in credit
markets. The signal is credible because in equilibrium
people who repay are more likely to be the low-risk type
and so receive better insurance terms. We explore two
different mechanisms through which repayment behavior in
the credit market can be positively correlated with
low-risk status in the insurance market. Our theory is
motivated in part by some facts regarding the role of
credit scores in consumer credit and auto insurance
markets. Forthcoming in the Journal of
Economic Theory.
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Social Security, Life Insurance and Annuities for Families
Jay Hong y José Víctor Ríos Rull.
We ask whether some aspects of social security, namely its
role as providing insurance against uncertain life spans is
welfare enhancing. We pose and calibrate models with agents
differing in age, sex and marital histories where we
compare the implications of different social security
policies under a variety of market structures. We find no
support for social security policies for the standard
reasons. We do find some support for maintaining the
Survivor Benefits program within social
security. Everything else equal, phasing out Survivors'
Benefits into standard social security reduces the
wellbeing of people by .03 percent of consumption on a flow
basis. We also explore these issues in a world with people
live longer and we find no differences in our
answers. Journal of Monetary
Economics, Volume 54/1, 118-140 (2007)
(Carnegie-Rochester Proceedings).
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Optimal time-consistent taxation with international
mobility of capital Paul Klein y Vincenzo Quadrini y
José Víctor Ríos Rull. The United
States taxes capital more than countries in continental
Europe do. In this paper, we ask what can account for
this. Our approach is to look at Markov perfect
equilibria of a two--country growth model where both
governments use labor, capital and corporate taxes to
finance exogenously given streams of public expenditure
under period-by-period balanced budget constraints. There
is no commitment technology and the equilibrium policies
are time-consistent. We find that differences in
productivity and size, and government spending can
account for the heavy American reliance on capital
taxation. Advances in Macroeconomics, The
B.E. Journals in Macroeconomics Volume 5, No 1,
Article 2 (2005). Awarded the 2005 Arrow Prize for Senior
Economists.
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On the Equilibrium Concept for Overlapping Generations
Organizations Edward C. Prescott y José
Víctor Ríos Rull. A necessary feature for
equilibrium is that beliefs about the behavior of other
agents are rational. We argue that in stationary OLG
environments this implies that any future generation in
the same situation as the initial generation must do as
well as the initial generation did in that situation. We
conclude that the existing equilibrium concepts in the
literature do not satisfy this condition. We then propose
an alternative equilibrium concept, organizational
equilibrium, that satisfies this condition. We show that
equilibrium exists, it is unique, and it improves over
autarky without achieving optimality. Moreover, the
equilibrium can be readily found by solving a
maximization program. International
Economic Review , November 2005 - Vol. 46 Issue
4 Page 1065-1080.
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Income taxes, public investment and welfare in a growing
economy. Marrero, Gustavo y Novales, Alfonso.In a growth
model with public capital and a spillover externality from
private capital, we find that income taxes as part of an
optimal fiscal policy is a more common result than usually
thought. The commitment to finance an exogenous component
of public expenditures in the form of an exogenous fraction
of output may lead to the optimality of positive income
taxes. This result is robust to alternative assumptions on
depreciation rates and preferences. We show that welfare
losses from deviations from the optimal policy are always
smaller when compensated with changes in income taxes than
when adjusting lump-sum taxes. Journal of
Economic Dynamics and Control, , vol. 31(10),
pages 3348-3369, October.
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Traditional versus unobserved components methods to
forecast quarterly national account aggregates. Gustavo
Marrero. We aim to assess the ability of two alternative
forecasting procedures to predict quarterly national
account (QNA) aggregates. The application of Box-Jenkins
techniques to observed data constitutes the basis of
traditional ARIMA and transfer function methods (BJ
methods). The alternative procedure exploits the
information of unobserved high- and low-frequency
components of time series (UC methods). An informal
examination of empirical evidence suggests that the
relationships between QNA aggregates and coincident
indicators are often clearly different for diverse
frequencies. Under these circumstances, a Monte Carlo
experiment shows that UC methods significantly improve the
forecasting accuracy of BJ procedures if coincident
indicators play an important role in such
predictions. Otherwise (i.e., under univariate procedures),
BJ methods tend to be more accurate than the UC
alternative, although the differences are small. We
illustrate these findings with several applications from
the Spanish economy with regard to industrial production,
private consumption, business investment and
exports. Journal of Forecasting,
vol. 26(2), pages 129-153.
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Growth and welfare: Distorting versus non-distorting taxes.
Gustavo A. Marrero and Alfonso Novales. Including a
wasteful component of public expenditures in an endogenous
growth framework similar to Barro [Journal of Political
Economy 98 (5) (1990) S103–S125], we analytically
characterize optimal public investment under two
alternative tax systems. Since households do not
internalize the fact that higher capital accumulation will
lead to extra public investment and consumption, financing
public expenditures through lump-sum taxes will lead to an
excessive crowding-out of current consumption, reducing
consumption in the short-run and limiting public capital
accumulation and long-run growth. This effect can be more
damaging for welfare than the disincentive created on
private capital disincentive created on private capital
accumulation when taxing capital income.
Journal of Macroeconomics, vol. 27(3), pages
403-433. 2004.
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Corn Market Integration in Porfirian Mexico. Rafael Dobadoy
Gustavo Marrero. This article aims to cover an important
aspect of the economic history of Porfirian Mexico: the
integration of agricultural domestic markets. Because corn
was the staple crop of the commercial agricultural sector,
it becomes the protagonist of this story. Panel techniques
are applied to a price-convergence model. Although still
unfinished on the eve of the Mexican Revolution, corn
market integration substantially accelerated during the
Porfiriato and ended up further integrated than estimated
by Kuntz. Railroads were not only indispensable to the
economic growth of Mexico, but also played a key role in
the process of corn market integration.
Journal of Economic History (2005), 65: 103-128.
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An Active Public Investment Rule and the Downsizing
Experience in the US: 1960-2000. Gustavo Marrero. We use a
simple growth model with public capital to examine the
evolution of the US macroeconomy and to discuss the
implications of the public infrastructure decline for the
productivity slowdown over the last four decades. The main
difference of the model to other papers in the related
literature is that public investment is actively managed as
a non-linear function of the state of the economy, and is
not a constant fraction of output in every period. The
active management policy delivers transition dynamics that
reproduce the public capital downsizing episode, but that
accounts for only a minor fraction of the observed
productivity slowdown. However, taking into consideration
higher rates of returns to public capital or the
reallocation of public resources from productive to
unproductive expenditures, which is consistent with the US
experience in the 70s and 80s, the model simulation
accounts for most of the observed productivity
slowdown.Topics
in Macroeconomics. Volume: 5 (2005) Issue: 1
1282-1282.
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Accounting for Earnings and Wealth Inequality Ana
Castañeda, Javier Díaz-Giménez y José Víctor
Ríos Rull. We show that a theory of earnings and
wealth inequality based on the optimal choices of ex-ante
identical households who face uninsured idiosyncratic
shocks to their endowments of e.ciency labor units accounts
for the U.S. earnings and wealth inequality almost
exactly. Relative to previous work, we make three major
changes to the way in which this basic theory is
implemented: (i) we mix the main features of the dynastic
and the life-cycle abstractions, that is, we assume that
our households are altruistic, and that they go through the
life-cycle stages of working-age and of retirement; (ii) we
model explicitly some of the quantitative properties of the
U.S. social security system; and (iii) we calibrate our
model economies to the Lorenz curves of U.S. earnings and
wealth as reported by the 1992 Survey of Consumer Finances.
Furthermore, our theory succeeds in accounting for the
observed earnings and wealth inequality in spite of the
disincentives created by the mildly progressive U.S. income
and estate tax systems, that are additional explicit
features of our model economies. Journal of
Political Economy, Vol. 111, no 4, 818-857,
(2003).
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Missing
Markets for Human Capital and Differences in Growth
Fernando Perera-Tallo. Standard growth models predict
that consumption and GNP growth rates should not differ
among countries when international capital markets are
considered. This paper introduces a generational
structure which implies that the return on human capital
exceeds the return on physical capital in
equilibrium. Thus, when the return on human capital
differs internationally, the growth rates of consumption
and GNP vary across countries even when there is free
capital mobility. Furthermore, GNP and GDP grow at the
same rate within a country, there is positive investment
in every country, and poverty traps persist in spite of
international capital markets.
Economica
Vol. 72(286), pages 241-265, 05.
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Growth Due
To Globalization Fernando Perera-Tallo. This article
presents a growth model including geographical space and
transportation costs in which the geographical area where
firms sell their product is endogenous. Growth is
generated by the expansion of trade and there is a
positive relationship between degree of openness and
income level. The model explains why economies become
increasingly more open and why the degree of openness is
not robustly correlated with growth. In contrast to other
growth models, investment in transport infrastructure
plays an important role and the size of the country does
not affect growth.
International Economic
Review,
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Existence of
steady - state equium in an overlapping-generations model
with production (*), Fernando Perera-Tallo.This paper
establishes an existence theorem of a non-trivial
(positive capital stock) steady-state equilibrium in
Diamond's (1965) overlapping-generations model with
production by employing the steady-state consumption
curve introduced in Ihori (1978). The assumptions on
preferences and production technologies that ensure the
existence of a nontrivial steady-state equilibrium are
separated from each other, unlike in Galor and Ryder
(1989). We also provide two simple examples which
illustrate the importance of two conditions in the
theorem. Economic
Theory, vol. 9(3), pages 529-537.
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Political complements in the welfare state: Health care
and social security Carlos Bethencourt y Vincenzo
Galasso. In Press Journal of Public
Economics
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The Success and Failure of Reforms in Transition
Economies. Stephen Parente y José
Víctor Ríos Rull. This paper argues that Russia’s
performance and China’s performance under
capitalism have differed dramatically because different
arrangements governing the determination of prices and
work practices evolved during the transition process. In
Russia, the arrangement, which conferred monopoly rights
to industry groups left over from socialism, prevented
the adoption of better technology. In China, the
arrangement that evolved contained no such monopoly
elements. The key factor in determining which arrangement
evolved was the strength of industry relative to the
central government at the start of the transition. We put
forth a model that implements these ideas and provide
evidence in support of this theory.
Journal of Money Credit and Banking, Vol 37. 1
23-42 (February 2005).
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Consumption-Savings Decisions with Quasi-Geometric
Discounting" Per Krusell and Anthony Smith. The
purpose of this paper is to study how an infinitely-lived
consumer with quasi-geometric discounting thought of as
represented by a sequence of selves with conflicting
preferences would make consumption and savings
decisions. Our main finding is one of indeterminacy of
Markov equilibrium savings rules: there is a continuum of
such rules. These rules differ both in their stationary
points and in their 2 implied dynamics. First, there is a
continuum of implied stationary points to which the
consumerÂ’s asset holdings may converge over
time. Second, associated with each stationary point is a
continuum of savings rules, implying that there is a
continuum of dynamic paths converging to each stationary
point. We construct these equilibria explicitly—the
savings rules are step functions. The discontinuities in
the step functions are key: payoff functions with jumps
can be optimal precisely because the different selves
have conflicting preferences, and depending on how the
jumps are structured they can make one self behave more
in the interest of another self or vice
versa. Econometrica, 71 (2003)
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"Time Consistent
Redistribution" Per Krusell. If the government
cares more about workers than about capitalists and
taxes capital income to -nance redistribution to
workers, how are inequality and capital accumulation
affected in the long run? Assuming that the government
cannot commit to future taxes, a time-consistent
equilibrium a differentiable subgame-perfect Markov
equilibrium characterized. In this equilibrium, the
current government in part uses the tax, via capital
accumulation, to manipulate future governments into
setting lower taxes. The equilibrium has substantially
lower taxes on capital income than 100%, even though
workers do not save and even though the weight on
capitalists in government utility is negligible.
European Economic Review, 46 (2002).
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Politico-Economic
Transition Per Krusell José-Víctor
Ríos-Rull. (Version December 2001). We propose a
political theory of transition from a non-market to a
market economy. Economic success in the model is
synonymous with the adoption of new production techniques
and this process requires explicit investment in human
capital. Economic policy consists of regulation of the
process of technology adoption, and a key aspect of the
economy is that there is inherent disagreement in the
population over how this policy should be conducted. Our
theory has the following features: (i) that an economic
transition is associated with a substantial drop in
output; (ii) that it is in the interest of large groups
in the population to resist the reforms; (iii) that
democratization is not sufficient for an economically
successful transition---indeed it will lead to
``backward'' policies and slow growth; and (iv) that an
interim period that departs from majority rule which
imposes laissez-faire is necessary for long-run
prosperity to be sustainable in the context of democratic
policy determination. Review of Economic
Design, 7:3 (2003).
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"Time Orientation and Asset
Prices" Per Krusell Anthony Smith and
Burhanettin Kuruscu. Evidence suggests that expected
excess stockmark et returns vary over time, and that this
variation is much larger than that of expected real
interest rates. It follows that a large fraction of the
movement in the cost of capital in standard investment
models must be attributable to movements in equity
risk-premia. In this paper we emphasize that such
movements in equity riskpremia should have implications
not merely for investment today, but also for future
investment over long horizons. In this case, predictive
variables for excess stockreturns over long-horizons are
also likely to forecast long-horizon fluctuations in the
growth of marginal Q; and therefore investment. We test
this implication directly by performing long-horizon
forecasting regressions of aggregate investment growth
using a variety of predictive variables shown elsewhere
to have forecasting power for excess stockmarket
returns. Journal of Monetary Economics, 49
(2002).
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Families as Shocks Luis Cubeddu y José
Víctor Ríos Rull. In this paper we show the quantitative
importance of the process that determines changes in family
composition to determine the main macroeconomic
magnitudes. We do so by modelling family type as a
stochastic process that affects households in a way similar
to shocks to earnings. Agents respond to these process by
optimally choosing savings. We show that the size of
savings differs dramatically depending on the details of
the stochastic process. The model is quantitative: its
fundamental parameters are estimated using
U.S. data. Journal of the European Economic
Association Volume 1, Issue 2-3, 671-682 (April/May
2003).
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Time-Consistent Optimal Fiscal Policy. Paul Klein y
José Víctor Ríos Rull. This paper
studies the properties of optimal fiscal policy in a
stochastic growth model when the government cannot commit
itself beyond the next period's capital income tax rate. We
find that the properties of optimal fiscal policy in this
case differ dramatically from those of the full commitment
solution. In particular, (i) capital income tax rates are
very high (65% on average versus close to zero on average
under full commitment), (ii) labor income taxes are rather
low on average (about 12% versus a value of around 31%
under full commitment), and (iii) labor income taxes are
volatile (in some cases its coefficient of variation is
higher than that of the capital income tax rate), while
under full commitment their standard deviations are
essentially zero. International Economic Review,
Vol. 44, Issue 4, 1217-1246 (November 2003).
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Habit Formation: Implications for the Wealth
Distribution Antonia Diaz, Josep Pijoan-Mas y
José Víctor Ríos Rull. We study the
role of habit formation in shaping the amount of
precautionary savings and the wealth distribution in
heterogeneous agents model economies with idiosyncratic
uncertainty. We adjust preferences to equate the
Intertemporal Elasticity of Substitution in all model
economies. We find that habit formation brings a hefty
increase in precautionary savings and very mild reductions
in the coe?cient of variation and in the Gini index of
wealth. These findings hold for both persistent and non
persistent habits, with the effects of the former being
much larger. Journal of Monetary Economics. Vol
50, no 6, 1257-1291 (September 2003).
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Consumption Smoothing in Island Economies: Can Public Insurance
Reduce Welfare. Orazio Attanasio y José Víctor
Ríos Rull. In this paper we study the effects of public
compulsory insurance arrangements for aggregate shocks on private
allocations in environments with limited commitment. This type of
insurance can improve the wellbeing of private situations, but it can
also deteriorate it. The reason behind this feature is that insurance
makes the consumption of the agents endowment better, which reduces
the discipline that enforces private insurance arrangements. We also
describe how different characteristics of the environment affect the
role of public insurance. We conclude that the introduction of public
insurance schemes requires the careful study of the environment where
they apply, in particular, of the relation between aggregate and
idiosyncratic uncertainty. European Economic Review,
Vol. 44 (7) pp. 1259-1289. June 2000.
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Implementing the 35 Hour Workweek by Means of Overtime Taxation
Victoria Osuna y José Víctor Ríos Rull. In this paper we study the
implications of taxing overtime work in order to reduce the
workweek. To this purpose we study the roles played by team work,
commuting costs and idiosyncratic output risk in determining the
choice of the workweek. In order to obtain reliable estimates of the
consequences of our policy experiment, we calibrate our model
economy to the substitutability between overtime and employment
using business cycle information. We find that a tax-rate of 12% of
overtime wages implements the desired reduction of the workweek form
40 to 35 hours (12.5%). We also find that this tax change increases
employment by 6.7% and reduces output and productivity by 10.2 and
4.1%, respectively. We also study a model economy with
cross-sectional variations in the workweek that arise from
plant-specific output risk and we find that in this model economy
the taxrates needed to achieve the same workweek reduction are
significantly larger. Finally, we find that taxing overtime dampens
the business cycle fluctuations and that its welfare costs seem to
be very large.
Review of Economic Dynamics.
Vol. 6, Issue 1, 179-206 (January 2003)
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College Attainment of Women. José Víctor
Ríos Rull y Virginia Sanchez Marcos. Up to the late seventies, the Sex College
Attainment Ratio (SCAR) or ratio of college attainment between
men and women was about 1.6. Assortative mating within education
groups in marriages is strong enough in the U.S. to prevent
accounting for the SCAR feature based on malesÂ’ higher
earnings. We document the puzzling nature of the SCAR, and we
explore various theories to account for it. Our main finding is
that if parentsÂ’ wellbeing is affect by the number of
grandchildren, gender differences in the steepness of the
negative relation between educational attainment and number of
children provides the best theory in accounting for the
SCAR. Review of Economic Dynamics Vol. 5, No 4,
965-998 (October 2002).
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Default
and Aggregate Fluctuations in Storage Economies.
Makoto Nakajima y José Víctor Ríos
Rull. In this paper we
extend Chatterjee, Corbae, Nakajma and Rios-Rull (2001) to
include aggregate real shocks to economic activity. The
model, that includes agents that borrow and lend, and that
has endogenous default and credit limits, allows us to
explore the extent to which aggregate events are amplified
or smoothed via the mechanism of household bankruptcy
filings. In the model agents are subject to shocks to
earnings opportunities, to preferences and to their asset
position and borrow and lend to smooth consumption. On
occasion, the realization of the shocks are bad enough that
agents take advantage of the opportunities provided by the
U.S. Bankruptcy Code and file for bankruptcy which wipes
out their debt at the expense of both being banned from
borrowing for a certain amount of time and of incurring in
transaction costs. The incentives to default are time
varying and depend on general economic conditions. The
model is quantitative in the sense that its fundamental
parameters are estimated using U.S. data, and the model can
replicate the aggregate conditions of the U.S. economy. We
show that the model accounts for the very high number of
bankruptcies in the last few years, and report the
statistics produced by the model economies with various
aggregate shocks. Based on the outputs, we analyze the
reaction of households to various aggregate real shocks,
and discuss the aggregate implications of the reaction and
the direction that the model might be further extended
to. Essays in Honor of Herbert Scarf',
Cambridge University Press.
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Updated Facts on the U.S. Distributions of Earnings, Income and
Wealth. Santiago Budria, Javier Diaz-Gimenez, Vincenzo
Quadrini, y José Víctor Ríos Rull. We provide some facts about inequality
based on the most recent data available (1998 SCF).
Federal Reserve Bank of Minneapolis Quarterly
Review, Summer 2002, Vol. 26, No. 3, pp. 2-35.
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Accounting for Earnings and Wealth Inequality August 2002
version. Joint with Ana Casta~neda, Javier Diaz-Gimenez y
José Víctor Ríos Rull. We show that a theory of earnings and wealth
inequality based on the optimal choices of ex-ante identical
households who face uninsured idiosyncratic shocks to their
endowments of e.ciency labor units accounts for the U.S. earnings
and wealth inequality almost exactly. Relative to previous work, we
make three major changes to the way in which this basic theory is
implemented: (i) we mix the main features of the dynastic and the
life-cycle abstractions, that is, we assume that our households are
altruistic, and that they go through the life-cycle stages of
working-age and of retirement; (ii) we model explicitly some of the
quantitative properties of the U.S. social security system; and
(iii) we calibrate our model economies to the Lorenz curves of
U.S. earnings and wealth as reported by the 1992 Survey of Consumer
Finances. Furthermore, our theory succeeds in accounting for the
observed earnings and wealth inequality in spite of the
disincentives created by the mildly progressive U.S. income and
estate tax systems, that are additional explicit features of our
model economies. Journal of Political Economy,
Vol. 111, no 4, 818-857, (2003).
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Desigualdad, ?Qué sabemos? José Víctor
Ríos Rull. En este
artículo repaso el estado actual de nuestros conocimientos
sobre qué factores justi.can la desigualdad en renta y riqueza
entre las familias. En particular, reivindico la sufficiencia de los
shocks a la renta como mecanismo generador de diferencias de riqueza
entre los hogares. Investigaciones
Económicas. Vol. XXVI (2), 2002, 221-254.
Last modified: Monday, 11 February 2008 at 22:14 UTC.