Price stability, inflation targeting and public debt policy

This paper studies the implications of inflation targeting (IT) regimes for public debt accumulation. By utilizing a simple dynamic macroeconomic policymaking model, we show that IT regimes may lead to higher public debt. Our results suggest that in countries where there are inherent distortions in the economy all IT regimes can do is shift the burden of adjustment onto other aspects of macroeconomic policymaking. We therefore argue that, adopting an IT regime without carrying out the required reforms towards eliminating the distortions in the economy is not necessarily an effective device for overall macroeconomic stability.

Income Inequality, Mobility, and the Welfare State: A Political Economy Model

In this paper, we set up a three-period stochastic overlapping generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax rates that determine the allocation of government revenues among transfer payments and old-age pensions. We show that the coalitions formed, the resulting political equilibria, and the demand for redistribution crucially depend on the level of income inequality and mobility.mobility, inequality, structure induced equilibrium, redistribution

The ART of Life: IVF or Child Adoption?

This paper analyzes the effects of child adoption on the utilization of assisted reproductive technology (ART) in the US. Using state-level longitudinal data for 1999-2006, we show that ART use is responsive to changes in adoption markets. Controlling for state-specific fixed effects, the estimated elasticity of ART cycles performed with respect to child adoptions is about -0.13 to -0.15. The responsiveness is higher when we consider infant adoptions, adoptions by older women, and international adoptions while there is no substitutability between ART and adoption of related children. Our findings suggest that public policies regarding adoption, including subsidies, influence ART use.child adoption, infertility treatment, assisted reproductive technology (ART), in vitro fertilization (IVF)

External finance, sudden stops and financial crisis: what is different this time?

This paper develops a two-country dynamic, stochastic general equilibrium(DSGE) model to investigate the transmission of a global financial crisis to a small open economy. Central to our framework are financial frictions that play a major role in the macroeconomic adjustment to global credit tightening. We find that small open economies hit by a sudden stop arising from financial distress in the global economy are likely to face a more prolonged crisis than when they experience a financial shock of domestic origin. This is because an important source of difficulty in responding to a global financial crisis is the inability of countries to export their way out of crisis due to the slump in world consumer demand initiated by the global financial distress -as is painfully experienced by many countries in contemporary times. Moreover, we show that the greater a country's trade integration with the rest of the world, the greater the fluctuation of its macroeconomic aggregates in response to a global financial crisis.sudden stops, financial crises, emerging markets.

Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed

Between 1996 and 2003, a series of amendments were made to the Tax Reform Act of 1986 that gradually increased the tax deduction for health insurance purchases by the self-employed from 25 to 100 percent. We study how these changes have influenced the likelihood that a self-employed person has health insurance coverage as the policy holder. The Current Population Survey is used to construct a data set corresponding to 1995-2005. Both the difference-in-difference and price elasticity of demand estimates suggest that the series of tax deductions did not provide sufficient incentives for the self-employed to obtain health insurance coverage.Health insurance, self-employment, elasticity, CPS

Foreign Debt and Fear of Floating: A Theoretical Exploration

This paper explores the relationship between the denomination of public debt and the choice of exchange rate regime. Unlike indexed domestic debt, foreign debt is subject to valuation effects from real exchange rate shocks. In a standard set-up, where a peg functions only as a nominal anchor, more foreign debt makes pegging less attractive, because it increases the value of a flexible exchange rate as a shock absorber. This result can be reversed if we incorporate the stylized fact that pegs have lower real exchange rate volatility, and if external shocks are sufficiently large relative to domestic shocks.inflation, output, public debt and exchange rate regimes