22 research outputs found
On the Perils of Stabilizing Prices When Agents are Learning.
We show that price level stabilization is not optimal in an economy where
agents have incomplete knowledge about the policy implemented and try to
learn it. A systematically more accommodative policy than what agents
expect generates short term gains without triggering an abrupt loss of con-
fidence, since agents update expectations sluggishly. In the long run agents
learn the policy implemented, and the economy converges to a rational expectations
equilibrium in which policy does not stabilize prices, economic
volatility is high, and agents suffer the corresponding welfare losses. However,
these losses are outweighed by short term gains from the learning
phase
Trading Off Welfare and Immigration in Europe.
In this paper, we explore the trade-off Europe faces when choosing between immigration
from poor countries and welfare spending. Using data from the European
Social Survey on sixteen countries from 2002{2012, we document that voter preferences
shifted in favor of redistribution but polarized over low-skill immigration. Notably,
there is a sharp increase in the share of individuals supporting the welfare state but
heavily opposing immigration. In order to provide an economic explanation for these
phenomena, we present a model where support for both immigration and redistributive
policies are potentially motivated by altruism. Using this model, we show how rising
unemployment rates, shares of foreign-born citizens and aggregate education can explain
observed shifts in policy preferences