On the optimality of age-dependent taxes and the progressive U.S. tax system

In life-cycle economies, where an individual's optimal consumption-work plan is almost never constant, the optimal marginal tax rates on capital and labor income vary with age. Conversely, the progressivity imbedded in the U.S. tax code implies that marginal tax rates vary with age because tax rates vary with earnings and earnings vary with age. Using numerical simulations, this paper shows that if the tax authority is prevented from conditioning tax rates on age, some degree of progressivity is desirable as progressive taxation better imitates optimal age-dependent taxes than an optimal age-independent tax system. This role for progressive taxation emanates from efficiency reasons and does not rely on any insurance nor re-distribution arguments <br><br> Keywords; progressive taxation, optimal taxation, life-cycle

Measuring consumption smoothing in CEX data

This paper proposes and implements a new method of measuring the degree of consumption smoothing using data from the Consumer Expenditure Survey. The structure of this Survey is such that estimators previously used in the literature are inconsistent, simply because income is measured annually and consumption is measured quarterly. We impose an AR(1) structure on the income process to obtain a proxy for quarterly income through a projection on annual income. By construction, this proxy gives rise to a measurement error which is orthogonal to the proxy itself - as opposed to the unobserved regressor - leading to a consistent estimator. We contrast our estimates with the output of two estimators used in the literature. We show that while the first (OLS) estimator tends to overstate the degree of risk sharing, the second (IV) estimator grossly understates it <br><br> Keywords; risk sharing, consumption smoothing, income risk, projection

Optimal taxation in infinitely-lived agent and overlapping generations models : a review

Fiscal policy ; Taxation

Why has home ownership fallen among the young?

We document that home ownership of households with “heads\" aged 25-44 years fell substantially between 1980 and 2000 and recovered only partially during the 2001-2005 housing boom. The 1980-2000 decline in young home ownership occurred as improvements in mortgage opportunities made it easier to purchase a home. This paper uses an equilibrium life-cycle model calibrated to micro and macro evidence to understand why young home ownership fell over a period when it became easier to own a home. Our findings indicate that a trend toward marrying later and the increase in household earnings risk that occurred after 1980 account for 3/5 to 4/5 of the decline in young home ownership <br><br> Keywords; housing, home ownership, tenure choice, first-time home-buyers, marriage, income risk <br><br>

Human Capital Investment and Debt Constraints

When young individuals face binding debt constraints, their human capital investments will be insufficiently financed by private creditors. If generations overlap, then a well-designed fiscal policy may be able to improve human capital investments by replacing missing capital markets with an intergenerational transfer scheme. Boldrin and Monte (2002) demonstrate that the optimal (balanced budget) fiscal policy in this context entails the joint provision of an education subsidy for the young and a pension program for the old, financed with a tax on those in their peak earning years. We demonstrate, however, that the desirability of such a policy depends crucially on the assumption of an exogenous debt constraint. If debt constraints arise endogenously for reasons of limited commitment, then the optimal (balanced budget) fiscal policy looks radically different. Furthermore, we find that arbitrary (non-optimal) policy interventions may actually lead to lower levels of human capital investment as altered default incentives induce private creditors to contract the supply of student loans by an amount greater than the subsidy. In some cases, the constrained-optimal policy entails zero intervention. These results highlight the importance of taking seriously the reasons for why debt constraints exist, before recommending any specific policy intervention.

S-wave phase shift in Lambda-pi scattering

We calculate the s-wave strong interaction $\Lambda$$\pi$ phase shift at the $\Xi$ mass taking into account contributions from the ${{\frac{1}{2}}}^{-}$ and ${{\frac{3}{2}}}^{-}$ $\Sigma$ resonances. We find the S-wave phase shift to be small, of the order of 0.3 degrees and bounded by 0.5 degrees.Comment: 4 page

Why has home ownership fallen among the young?

We document that home ownership of households with 'heads' aged 25-44 years fell substantially between 1980 and 2000 and recovered only partially during the 2001-2005 housing boom. The 1980-2000 decline in young home ownership occurred as improvements in mortgage opportunities made it easier to purchase a home. This paper uses an equilibrium life-cycle model calibrated to micro and macro evidence to understand why young home ownership fell over a period when it became easier to own a home. Our findings indicate that a trend toward marrying later and the increase in household earnings risk that occurred after 1980 account for 3/5 to 4/5 of the decline in young home ownership.Housing, home ownership, tenure choice, first-time home-buyers, marriage, income risk

Why has home ownership fallen among the young?

We document that home ownership of households with "heads" aged 25 - 44 years fell substantially between 1980 and 2000 and recovered only partially during the 2001-2005 housing boom. The 1980-2000 decline in young home ownership occurred as improvements in mortgage opportunities made it easier to purchase a home. This paper uses an equilibrium life-cycle model calibrated to micro and macro evidence to understand why young home ownership fell over a period when it became easier to own a home. Our findings indicate that a trend toward marrying later and the increase in household earnings risk that occurred after 1980 account for 3/5 to 4/5 of the decline in young home ownership.Home ownership ; Marriage

First-time home buyers and residential investment volatility

Like other macroeconomic variables, residential investment has become much less volatile since the mid-1980s (recent experience notwithstanding.) This paper explores the role of structural change in this decline. Since the early 1980s there have been many changes in the underlying structure of the economy, including those in the mortgage market which have made it easier to acquire a home. We examine how these changes affect residential investment volatility in a life-cycle model consistent with micro evidence on housing choices. We find that a decline in the rate of household formation, increased delay in marriage, and an increase in the cross-sectional variance of earnings drive the decline in volatility. Our findings provide support for the view that the “Great Moderation” in aggregate fluctuations is not just due to smaller aggregate shocks, but is driven at least in part by structural change.Home ownership ; Mortgages