Centro de Análisis y Estudios Ríos Pérez


  • Algunas de las Publicaciones de los Miembros del CAERP (No todas ni mucho menos)
    1. 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.
    2. 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).
    3. 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.
    4. 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).
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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).
    13. 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.
    14. 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,
    15. 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.
    16. Political complements in the welfare state: Health care and social security Carlos Bethencourt y Vincenzo Galasso. In Press Journal of Public Economics
    17. 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).
    18. 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 consumer’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)
    19. "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).
    20. 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).

    21. "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).
    22. 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).
    23. 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).

    24. 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).

    25. 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.

    26. 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)

    27. 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).

    28. 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.

    29. 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.

    30. 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).

    31. 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.