The long run effects of changes in tax progressivity

This paper compares the steady state outcomes of revenue-neutral changes to the progressivity of the tax schedule. Our economy features heterogeneous households who differ in their preferences and permanent labor productivities, but it does not have idiosyncratic risk. We find that increases in the progressivity of the tax schedule are associated with long-run distributions with greater aggregate income, wealth, and labor input. Average hours generally declines as the tax schedule becomes more progressive implying that the economy substitutes away from less productive workers toward more productive workers. Finally, as progressivity increases, income inequality is reduced and wealth inequality rises. Many of these results are qualitatively different than those found in models with idiosyncratic risk, and therefore suggest closer attention should be paid to modeling the insurance opportunities of households.Taxation ; Income tax

A note on sunspots with heterogeneous agents

This paper studies sunspot fluctuations in a model with heterogeneous households. We find that wealth inequality reduces the degree of increasing returns needed to produce indeterminacy, while wage inequality increases it. When the model is calibrated to match the joint distribution of hours, income, and wealth, the required degree of increasing returns to scale is still much too high to be supported empirically (although smaller than similar homogeneous agent economies). We also find that the model robustly predicts only one sunspot, despite having 1,262 predetermined state variables.Wealth ; Wages

Revenue-maximizing monetary policy

In this paper, we examine the impact that changes in the rate of money creation and reserve requirements have on real seigniorage revenue. We consider two additional features that differ from previous analyses. First, the model economies grow endogenously, and that growth depends on the accumulation of intermediated capital. Second, agents have two means of financing; one is bank deposits against which reserves must be held and the other is a nonbank intermediary. Thus, growth-rate effects and financing-substitution effects are both present, and one can assess the quantitiative importance or each factor.Monetary policy ; Revenue

Robustness, information-processing constraints, and the current account in small open economies

We examine the effects of two types of informational frictions, robustness (RB) and nite information-processing capacity (called rational inattention or RI) on the current account, in an otherwise standard intertemporal current account (ICA) model. We show that the interaction of RB and RI has the potential to improve the model’s predictions on the joint dynamics of the current account and income: (i) the contemporaneous correlation between the current account and income, (ii) the volatility and persistence of the current account in small open emerging and developed economies. In addition, we show that the two informational frictions could also better explain consumption dynamics in small open economies: the impulse responses of consumption to income shocks and the relative volatility of consumption growth to income growth. Calibrated versions using detection probabilities t the data better along these dimensions than the standard model does.

The Wealth Distribution and the Demand for Status

Standard economic theories of asset markets assume that assets are valued entirely for the consumption streams they can finance. This paper examines the introduction of the demand for status (as a function of wealth) into a model of uninsurable idiosyncratic risk. We find that spirit of capitalism preferences lead to less inequality in wealth and more in consumption. They also imply very different responses to a move from a progressive to a flat income tax; with spirit of capitalism preferences, wealth inequality goes down when the economy moves to a flat tax regime.

Financial Crises and Macro-Prudential Policies

Stochastic general equilibrium models of small open economies with occasionally binding financial frictions are capable of mimicking both the business cycles and the crisis events associated with the sudden stop in access to credit markets (Mendoza, 2010). In this paper we study the inefficiencies associated with borrowing decisions in a two-sector small open production economy. We find that this economy is much more likely to display "under-borrowing" rather than "over-borrowing" in normal times. As a result, macro-prudential policies (i.e. Tobin taxes or economy-wide controls on capital inflows) are costly in welfare terms in our economy. Moreover, we show that macro-prudential policies aimed at minimizing the probability of the crisis event might be welfare-reducing in production economies. Our analysis shows that there is a much larger scope for welfare gains from policy interventions during financial crises. That is to say that, within our modeling approach, ex post or crisis-management policies dominate ex ante or macro-prudential ones.Capital controls, crises, financial frictions, macro prudential policies, bailouts,overborrowing

Revisiting Overborrowing and its Policy Implications

This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficient borrowing) in a business cycle model for emerging market economies with production and an occasionally binding credit constraint. The main finding of the analysis is that overborrowing is not a robust feature of this class of model economies: it depends on the structure of the economy and its parametrization. Specifically, we find underborrowing in a production economy with our baseline calibration, but overborrowing with more impatient agents and more volatile shocks. Endowment economies display overborrowing regardless of parameter values, but they do not allow for policy intervention when the constraint binds (in crisis times). Quantitatively, the welfare gains from implementing the constrained efficient allocation are always larger near crisis times than in normal

Mixing by microorganisms in stratified fluids

We examine the vertical mixing induced by the swimming of microorganisms at low Reynolds and Péclet numbers in a stably stratified ocean, and show that the global contribution of oceanic microswimmers to vertical mixing is negligible. We propose two approaches to estimating the mixing efficiency, η, or the ratio of the rate of potential energy creation to the total rate-of-working on the ocean by microswimmers. The first is based on scaling arguments and estimates η in terms of the ratio between the typical organism size, a, and an intrinsic length scale for the stratified flow, l = (νκ/N2)1/4, where ν is the kinematic viscosity, κ the diffusivity, and N the buoyancy frequency. In particular, for small organisms in the relevant oceanic limit, a/l \u3c\u3c 1, we predict the scaling η ∼ (a/l)3. The second estimate of η is formed by solving the full coupled flow-stratification problem by modeling the swimmer as a regularized force dipole, and computing the efficiency numerically. Our computational results, which are examined for all ratios a/l, validate the scaling arguments in the limit a/l \u3c\u3c 1 and further predict η ≈ 1.2(a/l)3 for vertical swimming and η ≈ 0.15 (a/l)3 for horizontal swimming. These results, relevant for any stratified fluid rich in biological activity, imply that the mixing efficiency of swimming microorganisms in the ocean is at very most 8% and is likely smaller by at least two orders of magnitude

Extreme cavity expansion in soft solids: damage without fracture

Cavitation is a common damage mechanism in soft solids. Here, we study this using a phase-separation technique in stretched, elastic solids to controllably nucleate and grow small cavities by several orders of magnitude. The ability to make stable cavities of different sizes, as well as the huge range of accessible strains, allows us to systematically study the early stages of cavity expansion. Cavities grow in a scale-free manner, accompanied by irreversible bond breakage that is distributed around the growing cavity, rather than being localized to a crack tip. Furthermore, cavities appear to grow at constant driving pressure. This has strong analogies with the plasticity that occurs surrounding a growing void in ductile metals. In particular we find that, although elastomers are normally considered as brittle materials, small-scale cavity expansion is more like a ductile process. Our results have broad implications for understanding and controlling failure in soft solids

GSA’s Commercial Marketplaces Initiative: Opening Amazon and Other Private Marketplaces To Direct Purchases By Government Users

The U.S. General Services Administration (GSA) opened a new chapter in public procurement by awarding three contracts—to Amazon Business, Overstock.com, and Fisher Scientific—that will allow federal users to buy directly from online electronic marketplaces, with sales anticipated to total $6 billion annually. This proof-of-concept effort, dubbed the “commercial platforms” initiative by GSA, marks a radical departure from traditional procurement practices because it will allow individual Government users (not necessarily procurement officials) to make “micro-purchases” (generally up to$10,000) using Government purchase cards. By removing the federal procurement system as an intermediary in the purchasing process, and in essence outsourcing the selection of available sources to private providers of electronic platforms, GSA’s initiative has both reshaped procurement and potentially redrawn a marketplace. This paper reviews the purpose and history of GSA’s commercial platforms initiative, which began with a mandate from Congress to explore electronic commerce options and evolved through long exchanges with industry, users, and other stakeholders. In assessing the reasons for the initiative, the paper notes a longstanding concern (framed by principles of agency theory) that users’ needs were not being met by the traditional procurement system. The paper discusses GSA’s decision to steer the initiative to existing commercial platforms and reviews key elements of the solicitation used to frame the “no-cost” contracts with the online marketplaces. Because Amazon Business was by far the most prominent of the awardees—indeed, Amazon had played an ongoing role in pressing for the procurement—and vendors may want to sell through the commercial platforms to reach federal customers, this paper focuses on Amazon Business’ procedures in discussing how vendors might join the commercial platforms. The paper concludes with a series of Guidelines that vendors and other market participants might use, as they enter this new corner of the federal marketplace