A theory of dynamics and inequalities under epidemics

We develop a tractable general theory for the study of the economic and demographic impact of epidemics. In particular, we analytically characterise the short and medium term consequences of epidemics for population size, age pyramid, economic performance and income distribution. To this end, we develop a three-period overlapping generations where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depend on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Ophans are not only penalized in front of death , they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We identify three kinds of epidemics depending on how the epidemic shock alters the marginal efficiency of health expenditures. We first study the demographic dynamics, and prove that while a one-period epidemic shock has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. We then study the impact of the three kinds of epidemics when they hit children and/or junior adults. We prove that while the three epidemics have significantly different demographic implications in the medium run, they all imply a worsening in the short and medium run of economic performance and income distribution. In particular, the distributional implications of the model mainly rely on orphans: if orphans are more penalized in the access to a high llevel of education than in front of death, they will necessarily lead to the medium-term increase in the proportion of the unskilled, triggering the impoverishment of the economy at that time horizon.Epidemics, orphans, income distribution, endogenous survival, medium-term dynamics

Demographic transition, intergenerational transfers and the increase in public and national debts

This paper investigates time consistent policies and reforms of intergenerational transfers. If the weight the Government gives to the living elderly is low enough, successive Governments will implement policies with equitable results across generations, even if their social welfare function is not equitable with the unborn. The ratio of Government public debt to GDP will not change over time, and the consumption flows of successive generations will grow at the natural rate of the economy. However, if the Government gives a higher weight to the elderly, the ratio of public debt to GDP will increase over time. Then, future generations will have to pay higher and higher taxes and consume less and less. Demographic transition does not interfere with these results although it makes every consumer poorer. However, there is the possibility that the weight of the elderly in Government preferences has increased recently, and that some Western democracies are entering a process of increasing public indebtedness and immiserisation of future generations.Ce papier analyse les politiques et réformes dynamiquement cohérentes d'un système public de transferts intergénérationnels. Si l'Etat accorde un poids suffisamment modéré aux personnes âgées vivantes, les gouvernements successifs mettront en oeuvre des politiques donnant des résultats équitables pour les différentes générations, alors même que leurs fonctions de bien-être social ne sont pas équitables à l'égard des générations non encore nées. Le rapport de la dette publique au PIB ne changera pas au cours du temps et les consommations des générations successives croîtront au taux naturel de l'économie. Cependant, si le gouvernement donne un poids plus élevé aux personnes âgées, le rapport de la dette publique au PIB augmentera au cours du temps. Alors, les générations futures paieront des impôts de plus en plus élevés et consommeront de moins en moins. La transition démographique n'interfère pas avec ces résultats, bien qu'elle rende tous les consommateurs plus pauvres. Cependant, il y a la possibilité que le poids des générations âgées dans les préférences de l'Etat ait augmenté récemment et que certains pays industrialises soient entrés dans un processus d'endettement public croissant et d'appauvrissement des générations futures

Intergenerational transfers and the stability of public debt with short-lived governments

International audienceTime consistent policies and reforms of intergenerational transfers are analyzed in an overlapping generation model. Governments have preferences, which give much weight to the living generations and they cannot commit themselves to future taxes and transfers, which will be decided by future governments with different objectives. The economy follows one of two equilibrium paths with perfect foresight. On one path, governments finance the costs of their transfers to the living by increasing public debt recklessly. Consumers pay more and more taxes to finance the cost of this debt, and the successive generations will enter a process of immiserisation. On the other path, in spite of their preference bias, governments borrow less and put the economy on a path of egalitarian consumption flows for the successive generations, with a constant ratio of public debt to national income. The mechanisms, which put an economy on one or the other equilibrium paths, are unconnected to the fundamentals of the model

A theory of dynamics and inequalities under epidemics

We develop a tractable general theory for the study of the economic and demographic impact of epidemics. In particular, we analytically characterise the short and medium term consequences of epidemics for population size, age pyramid, economic performance and income distribution. To this end, we develop a three-period overlapping generations where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depend on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Ophans are not only penalized in front of death , they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We identify three kinds of epidemics depending on how the epidemic shock alters the marginal efficiency of health expenditures. We first study the demographic dynamics, and prove that while a one-period epidemic shock has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. We then study the impact of the three kinds of epidemics when they hit children and/or junior adults. We prove that while the three epidemics have significantly different demographic implications in the medium run, they all imply a worsening in the short and medium run of economic performance and income distribution. In particular, the distributional implications of the model mainly rely on orphans: if orphans are more penalized in the access to a high llevel of education than in front of death, they will necessarily lead to the medium-term increase in the proportion of the unskilled, triggering the impoverishment of the economy at that time horizon.epidemics, orphans, income distribution, endogenous survival, medium-term dynamics

On the distributional consequences of epidemics

We develop a tractable general theory for the study of the economic and demographic impact of epidemics, and notably its distributional consequences. To this end, we develop a three-period overlapping generations model where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depends on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Orphans are not only penalized in the face of death, they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We specifically study the consequence of a negative shock on adult survival rates in the first period. We prove that while the epidemic has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. In particular, the epidemic may imply a worsening in the short and medium run of both economic performance and income distribution. Two opposite mechanisms are isolated: first, the survival rate of children at the end of the first period decreases relatively more in poor than in wealthy families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Secondly, the number of orphans in period 1 increases in both families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Therefore, the proportion of the unskilled will necessarily increase in the medium run if orphans are too penalized in the access to a high level of education.Epidemics, orphans, income distribution, endogenous survival, medium-term dynamics

On the Distributional Consequences of Epidemics

We develop a tractable general theory for the study of the economic and demographic impact of epidemics, and notably its distributional consequences. To this end, we develop a three-period overlapping generations model where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depends on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Orphans are not only penalized in the face of death, they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We specifically study the consequence of a negative shock on adult survival rates in the first period. We prove that while the epidemic has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. In particular, the epidemic may imply a worsening in the short and medium run of both economic performance and income distribution. Two opposite mechanisms are isolated: first, the survival rate of children at the end of the first period decreases relatively more in poor than in wealthy families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Secondly, the number of orphans in period 1 increases in both families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Therefore, the proportion of the unskilled will necessarily increase in the medium run if orphans are too penalized in the access to a high level of education.Epidemics, orphans, income distribution, endogenous survival, medium-term dynamics

Demographic transition, intergenerational transfers and the increase in public and national debts

This paper investigates time consistent policies and reforms of intergenerational transfers. If the weight the Government gives to the living elderly is low enough, successive Governments will implement policies with equitable results across generations, even if their social welfare function is not equitable with the unborn. The ratio of Government public debt to GDP will not change over time, and the consumption flows of successive generations will grow at the natural rate of the economy. However, if the Government gives a higher weight to the elderly, the ratio of public debt to GDP will increase over time. Then, future generations will have to pay higher and higher taxes and consume less and less. Demographic transition does not interfere with these results although it makes every consumer poorer. However, there is the possibility that the weight of the elderly in Government preferences has increased recently, and that some Western democracies are entering a process of increasing public indebtedness and immiserisation of future generations.intergenerational transfers ; pay-as-you-go pension system ; overlapping generation model ; time consistent policies

MEDIUM TERM DYNAMICS IN A RATIONAL EXPECTATION MODEL WITH VINTAGE CAPITAL AND APPROPRIABILITY

In this paper, we compute a model focusing on medium term dynamics, in the line of Caballero and Hammour (1998). The main features of the model are a putty-clay production function and the bargaining between workers and firms over the rent. Although using vintage units of production is a sensible way to model the dynamics of aggregate supply, it raises many computational problems that explain why it has not been very popular in the economic literature. Indeed, with a putty-clay production function, a unit-specific wage is bargained in each vintage of production, on the basis of the expectations on the remaining lifetime of the unit. And the lifetime of each vintage unit of production is set according to the expected profitability over a long time period. Thus, any proper modelling of this type of model has often been considered as too cumbersome. This explains why the putty-clay production is barely used, and why strong additional assumptions - such as fully backward expectations - are made to turn the model more tractable.The lack of tractability of the rational expectation version of the previous kind of model is related to three main difficulties. First, it has a large number of equations and expected variables. Second, equations include a lead-structure that spans the expected lifetime of a new unit. Third, some behavioural equations are highly non-linear. Here, we provide an example showing that traditional computational restrictions can be overcome by using the stack- algorithm developed to solve large rational expectation models.Simulations are run to describe the medium term dynamics of the profit share and unemployment in four OECD countries. We extend the analysis realised by Caballero and Hammour (1998) on France. They show that shifts in unemployment benefits and firing costs in the 70Æs can explain the historical developments in capital-labour relation. In a slightly different framework, Blanchard (1999) considers other explanations related to country- specific or worldwide shocks. We investigate the relevance of the main potential explanations in the light of the contrasted macro-economic performance of the US, the UK, Germany and France over the last three decades. Moreover, contrary to Caballero and Hammour (1998), who use an iterative method to solve their model, we apply a more consistent algorithm for this type of model. We also assess the advantage of such a method by comparing the simulations run with the stack-algorithm to those obtained with the Fair-Taylor iterative method.

Une maquette trimestrielle de l’économie française avec anticipations rationnelles et concurrence monopolistique

L’article présente une maquette dynamique, chiffrée sur données trimestrielles de l’économie française, décrivant une situation de concurrence monopolistique à la fois sur le marché des biens et sur celui du travail. Sur ce dernier existe un effet de persistance conforme à la théorie « insider-outsider ». Le modèle est bouclé par la prise en compte de la consommation des ménages (revenu permanent) ainsi que des dépenses publiques et des échanges extérieurs. Après avoir étudié les propriétés de long terme de la maquette et vérifié les conditions d’existence et d’unicité de trajectoires d’anticipations rationnelles au voisinage de la solution stationnaire, des multiplicateurs dynamiques correspondant à des chocs transitoires non anticipés sont calculés et interprétés.We present a small size dynamic macroeconomic model, numerically calibrated on quarterly French data, describing an economy working under imperfect competition on both labour and goods markets. The labour market exhibits a persistence effect relying on the insider-outsider theory. The closure of the model is obtained by household consumption (permanent income), by public spendings and by foreign trade. The long run properties of the model and the conditions for a unique rational expectations path in the neighbourhood of the steady state are successively analysed before computing and interpreting the dynamic multipliers associated with non anticipated transitory shocks

La nouvelle modélisation macroéconomique appliquée à l'analyse de la conjoncture et à l'évaluation des politiques : les modèles dynamiques stochastiques d'équilibre général (DSGE)

National audienceCet article introduit un numéro spécial présentant la totalité des aspects de la nouvelle macroéconomie dynamique. Il est divisé en trois parties : la spécification des modèles DSGE, les méthodes de simulation, d'estimation et de test des modèles DSGE, les applications des modèles DSGE