Advance Articles

Sebastian Dyrda

University of Toronto

Marcelo Pedroni

University of Amsterdam

Abstract: We study optimal fiscal policy in a standard incomplete-markets model with uninsurable idiosyncratic income risk, where a Ramsey planner chooses time-varying paths of proportional capital and labor income taxes, lump-sum transfers (or taxes), and government debt. We find that: (1) short-run capital income taxes are effective in providing redistribution since the tax base is relatively unequal and inelastic; (2) an increasing pattern of labor income taxes over time mitigates intertemporal distortions from capital income taxes; (3) the optimal policy increases overall transfers, calibrated initially to the US welfare system, by roughly 50 percent; (4) two-thirds of the welfare gains come from redistribution and the remaining third come mostly from insurance; and (5) redistribution also leads to a more efficient allocation of labor via wealth effects on labor supply—lower productivity households can afford to work relatively less.

Matthew Gentry

Florida State University

Pasquale Schiraldi

London School of Economics and Political Science

 

Tatiana Komarova

London School of Economics and Political Science

 

Abstract: Motivated by the prevalence of simultaneous bidding across a wide range of auction markets, we develop and estimate a model of strategic interaction in simultaneous first-price auctions when objects are heterogeneous and bidders have nonadditive preferences over combinations. We establish non-parametric identification of primitives in this model under standard exclusion restrictions, providing a basis for both estimation and testing of preferences over combinations. We then apply our model to data on Michigan Department of Transportation (MDOT) highway procurement auctions, quantifying the magnitude of cost synergies and evaluating the performance of the simultaneous first-price mechanism in the MDOT marketplace.

Laurence Ball

Johns Hopkins University

N. Gregory Mankiw

Harvard University

Abstract: This paper examines the optimal accumulation of capital and the effects of government debt in neoclassical growth models in which firms have market power and therefore charge prices above marginal cost. In this environment, the real interest rate earned by savers is less than the net marginal product of capital. We establish a new method for evaluating dynamic efficiency that can be applied in such economies. A plausible calibration suggests that the wedge between the real interest rate and the marginal product of capital is about 4 percentage points and that the U.S. economy is dynamically efficient. In addition, government Ponzi schemes can have different implications for welfare than they do under competition. Even if the government can sustain a perpetual rollover of debt and accumulating interest, the policy may nonetheless reduce welfare by depressing steady-state capital and aggregate consumption. These findings suggest that even with low interest rates, as have been observed recently, fiscal policymakers should still be concerned about the crowding-out effects of government debt.

Abstract: Can massive online retailers such as Amazon and Alibaba issue digital tokens that potentially compete with bank debit accounts? There is a long history of trading stamps and loyalty points, but new technologies are poised to sharply raise the significance of redeemable assets as a store of value. Here we develop a simple stylized model of redeemable tokens that can be used to study sales and pricing strategies for issuing tokens, including ICOs. Our central finding is that platforms can potentially earn higher revenues by making tokens non-tradable unless they can generate a sufficiently high outside-platform convenience yield.

Just Accepted

Martin Beraja

MIT Department of Economics

Abstract: I propose a methodology for constructing counterfactuals with respect to changes in pol- icy rules which does not require fully specifying a particular model,yet is not subject to Lucas Critique.It applies to a class of dynamic stochastic models whose equilibria are well approximated by a linear representation.It rests on the insight that many such models sat isfy a principle of counterfactual equivalence: they are observationally equivalent under a benchmark policy and yield an identical counterfactual equilibrium under an alternative one.

Forthcoming Articles