Suchergebnisse

This paper relies on a Ramsey model with money to o¤er a simple theory of secular stagnation. The permanent failure of the economy to produce at full capacity results from three features: (i) The combination of the zero lower bound on the nominal interest rate and of an in ‡ation ceiling imposes a lower bound on the real interest rate; (ii) Some dynastic households have a high propensity to save, due to a preference for wealth; (iii) A downward wage rigidity breaks the de ‡ationary spiral resulting from the lack of demand. In this framework, I derive the paradox of ‡exibility, of thrift, and of toil. If the in ‡ation ceiling cannot be raised, then the government needs to rely on …scal policy to escape secular stagnation. However, a conventional …scal stimulus is not an e¢ cient response to a permanent liquidity trap, and can even be welfare reducing. The solution is instead to tax household wealth and to subsidize income from physical capital, through an investment subsidy or a reduction in the taxation of corporate income. This optimal policy is revenue neutral and implements the …rst-best allocation of resources. However, to avoid a jump in the price level upon implementation of the optimal policy, the government needs to redeem the money that had previously been supplied to …nance public de…cits.

This paper relies on a Ramsey model with money to o¤er a simple theory of secular stagnation. The permanent failure of the economy to produce at full capacity results from three features: (i) The combination of the zero lower bound on the nominal interest rate and of an in ‡ation ceiling imposes a lower bound on the real interest rate; (ii) Some dynastic households have a high propensity to save, due to a preference for wealth; (iii) A downward wage rigidity breaks the de ‡ationary spiral resulting from the lack of demand. In this framework, I derive the paradox of ‡exibility, of thrift, and of toil. If the in ‡ation ceiling cannot be raised, then the government needs to rely on …scal policy to escape secular stagnation. However, a conventional …scal stimulus is not an e¢ cient response to a permanent liquidity trap, and can even be welfare reducing. The solution is instead to tax household wealth and to subsidize income from physical capital, through an investment subsidy or a reduction in the taxation of corporate income. This optimal policy is revenue neutral and implements the …rst-best allocation of resources. However, to avoid a jump in the price level upon implementation of the optimal policy, the government needs to redeem the money that had previously been supplied to …nance public de…cits.

This paper relies on a Ramsey model with money to o¤er a simple theory of secular stagnation. The permanent failure of the economy to produce at full capacity results from three features: (i) The combination of the zero lower bound on the nominal interest rate and of an in ‡ation ceiling imposes a lower bound on the real interest rate; (ii) Some dynastic households have a high propensity to save, due to a preference for wealth; (iii) A downward wage rigidity breaks the de ‡ationary spiral resulting from the lack of demand. In this framework, I derive the paradox of ‡exibility, of thrift, and of toil. If the in ‡ation ceiling cannot be raised, then the government needs to rely on …scal policy to escape secular stagnation. However, a conventional …scal stimulus is not an e¢ cient response to a permanent liquidity trap, and can even be welfare reducing. The solution is instead to tax household wealth and to subsidize income from physical capital, through an investment subsidy or a reduction in the taxation of corporate income. This optimal policy is revenue neutral and implements the …rst-best allocation of resources. However, to avoid a jump in the price level upon implementation of the optimal policy, the government needs to redeem the money that had previously been supplied to …nance public de…cits.

This paper relies on the new Keynesian model with inflation persistence to characterize the optimal monetary and fiscal policy in a liquidity trap. It shows that, with a Phillips curve that is both forward and backward looking, the monetary policy that is implemented during a liquidity trap episode can lift the economy out of depression. The central bank does not need to commit beyond the end of the crisis to get some traction on the level of economic activity. Regarding fiscal policy, inflation persistence justifies some front-loading of government expenditures to get ination started, which reduces the real interest rate. The magnitude of the optimal fiscal stimulus is decreasing in the degree of inflation persistence. Finally, if inflation persistence is due to adaptive expectations, rather than to price indexation, then monetary policy is ineffective while the optimal fiscal stimulus is large and heavily front-loaded.

This paper relies on the new Keynesian model with inflation persistence to characterize the optimal monetary and fiscal policy in a liquidity trap. It shows that, with a Phillips curve that is both forward and backward looking, the monetary policy that is implemented during a liquidity trap episode can lift the economy out of depression. The central bank does not need to commit beyond the end of the crisis to get some traction on the level of economic activity. Regarding fiscal policy, inflation persistence justifies some front-loading of government expenditures to get ination started, which reduces the real interest rate. The magnitude of the optimal fiscal stimulus is decreasing in the degree of inflation persistence. Finally, if inflation persistence is due to adaptive expectations, rather than to price indexation, then monetary policy is ineffective while the optimal fiscal stimulus is large and heavily front-loaded.

While the participation decision is discrete in a static context, i.e. to work or not to work, such is not the case in a life-cycle context where workers choose the fraction of their lifetime that they spend working. In this paper, I therefore characterize the optimal redistribution policy in a life-cycle framework with both an intensive and an extensive margin of labor supply. The government should optimally design a history-dependent social security system which induces higher productivity individuals to retire later. Some redistribution therefore needs to be done through the pension system; a standard non-linear income tax is not enough.

While the participation decision is discrete in a static context, i.e. to work or not to work, such is not the case in a life-cycle context where workers choose the fraction of their lifetime that they spend working. In this paper, I therefore characterize the optimal redistribution policy in a life-cycle framework with both an intensive and an extensive margin of labor supply. The government should optimally design a history-dependent social security system which induces higher productivity individuals to retire later. Some redistribution therefore needs to be done through the pension system; a standard non-linear income tax is not enough.

Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade-off between inducing the able to work and providing insurance against disability. After deriving the first-order conditions to this problem, we calibrate the model to the U.S. economy and run a numerical simulation. The government should offer back-loaded incentives and make strategic use of the difference between the age at which disability occurs and the age of eligibility to disability benets. Also, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age. This makes a decrease in the strictness of the disability test desirable which would reduce the number of disabled who are not awarded the tag and, hence, improve insurance. Finally, we show how the first-best allocation of resources can asymptotically be implemented by making strategic use of the disability test.

Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade-off between inducing the able to work and providing insurance against disability. After deriving the fi…rst-order conditions to this problem, we calibrate the model to the U.S. economy and run a numerical simulation. The government should offer back-loaded incentives and make strategic use of the difference between the age at which disability occurs and the age of eligibility to disability bene…ts. Also, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age. This makes a decrease in the strictness of the disability test desirable which would reduce the number of disabled who are not awarded the tag and, hence, improve insurance. Finally, we show how the …first-best allocation of resources can asymptotically be implemented by making strategic use of the disability test.