Essays in Quantitative Economics and International Finance

This dissertation uses quantitative dynamic models to study two separate questions in international finance and international labor markets. In Chapter 2, we build a two-country two-good incomplete markets general equilibrium model of international portfolio choice, and use it to study global imbalances, in particular the large negative net foreign asset position, and international portfolio composition of the United States. We show that the ``exorbitant privilege\u27\u27 of the US (ability to borrow in domestic currency) and lower volatility of macroeconomic shocks that the US has experienced since mid-80s can account for a large part of the negative net foreign position of the US, and also generate a realistic portfolio structure. In Chapter 3, we study the differences in labor supply between the US and Europe. Using micro data from the US and eight European countries, we document that the difference between the US and Europe is mainly driven by the labor supply of women.European women work less than American women, whether it is single women, married women, or women with and without children. Using a larger number of countries, we also document that there is a strong correlation between divorce rates and female employment rates across countries and across time. A recent literature, including Prescott (2004) and Rogerson (2005), argues that differences in labor supply between the US and Europe can largely be explained by differences in tax rates. We use tax data from the OECD to develop tax schedules for a sample of 17 countries. The empirical correlation between hours worked and different measures of tax levels and progressivity is negative, however weak. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms: 1) differences in marriage stability and 2) differences in tax systems on labor supply. There are three types of households; single males, single females and married households. Divorces and marriages occur stochastically. The main channel through which individual divorce and singlehood rates impact labor supply is by reducing the implicit insurance of marriage, and thereby providing incentives for individuals to invest in experience. We calibrate our model to US data and study how labor supply in the US changes as we introduce European tax systems, and as we replace the US divorce and marriage rates with their European equivalents. We find that the divorce and tax mechanisms combined on average explain 28% of the difference between the US and 11 European countries

Marriage stability, taxation and aggregate labor supply in the U.S. vs. Europe

Americans work more than Europeans. Using micro-data from the United States and 17 European countries, we document that women are typically the largest contributors to the cross-country differences in work hours. We also show that there is a negative relation between taxes and annual hours worked, driven by men, and a positive relation between divorce rates and annual hours worked, driven by women. In a calibrated life-cycle model with heterogeneous agents, marriage and divorce, we find that the divorce and tax mechanisms together can explain 45% of the variation in labor supply between the United States and the European countries

Growth, Housing, and Global Imbalances

In the decade leading to the Great Recession, the United States experienced rising house prices and current account deficits, whereas China and other fast-growing Asian economies saw rising house prices accompanied by current account surpluses. To explain these differences, we study a transition path in a two-country life-cycle model with housing once the two economies become financially integrated. We allow for asymmetries in productivity growth, the loan-to-value ratio, the life-cycle wage profile, and the population structure across countries. Our findings highlight that differences in the life-cycle pattern of the wage income profile are key to obtaining our results.Luis Franjo acknowledges financial support from Consellería de Innovación, Universidades, Ciencia y Sociedad Digital de la Generalitat Valenciana (CIPROM/2021/060)

How Does Tax Progressivity and Household Heterogeneity Affect Laer Curves?

How much additional tax revenue can the government generate by increasing labor income taxes? In this paper we provide a quantitative answer to this question, and study the importance of the progressivity of the tax schedule for the ability of the government to generate tax revenues. We develop a rich overlapping generations model featuring an explicit family structure, extensive and intensive margins of labor supply, endogenous accumulation of labor market experience as well as standard intertemporal consumption-savings choices in the presence of uninsurable idiosyncratic labor productivity risk. We calibrate the model to US macro, micro and tax data and characterize the labor income tax La er curve under the current choice of the progressivity of the labor income tax code as well as when varying progressivity. We nd that more progressive labor income taxes signi cantly reduce tax revenues. For the US, converting to a at tax code raises the peak of the La er curve by 6%, whereas converting to a tax system with progressivity similar to Denmark would lower the peak by 7%. We also show that, relative to a representative agent economy tax revenues are less sensitive to the progressivity of the tax code in our economy. This nding is due to the fact that labor supply of two earner households is less elastic (along the intensive margin) and the endogenous accumulation of labor market experience makes labor supply of females less elastic (around the extensive margin) to changes in tax progressivity

ePub WU Institutional Repository A two-period model with portfolio choice: Understanding results from different solution methods

• We present a stylized two period model of portfolio choice. • We compare the solutions of Devereux-Sutherland and Judd-Guu with a nonlinear solution. • The true portfolio solution depends on the size of uncertainty. • The Judd-Guu method captures this dependence well. • The Devereux-Sutherland solution is unaffected by changes in the size of uncertainty. a r t i c l e i n f

Essays in quantitative macroeconomics and international finance

This dissertation uses quantitative dynamic models to study two separate questions in international finance and international labor markets. In Chapter 2, we build a two-country two-good incomplete markets general equilibrium model of international portfolio choice, and use it to study global imbalances, in particular the large negative net foreign asset position, and international portfolio composition of the United States. We show that the “exorbitant privilege” of the US (ability to borrow in domestic currency) and lower volatility of macroeconomic shocks that the US has experienced since mid-80s can account for a large part of the negative net foreign position of the US, and also generate a realistic portfolio structure. In Chapter 3, we study the differences in labor supply between the US and Europe. Using micro data from the US and eight European countries, we document that the difference between the US and Europe is mainly driven by the labor supply of women. European women work less than American women, whether it is single women, married women, or women with and without children. Using a larger number of countries, we also document that there is a strong correlation between divorce rates and female employment rates across countries and across time. A recent literature, including Prescott (2004) and Rogerson (2005), argues that differences in labor supply between the US and Europe can largely be explained by differences in tax rates. We use tax data from the OECD to develop tax schedules for a sample of 17 countries. The empirical correlation between hours worked and different measures of tax levels and progressivity is negative, however, weak. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms: 1) differences in marriage stability and 2) differences in tax systems on labor supply. There are three types of households; single males, single females and married households. Divorces and marriages occur stochastically. The main channel through which individual divorce and singlehood rates impact labor supply is by reducing the implicit insurance of marriage, and thereby providing incentives for individuals to invest in experience. We calibrate our model to US data and study how labor supply in the US changes as we introduce European tax systems, and as we replace the US divorce and marriage rates with their European equivalents. We find that the divorce and tax mechanisms combined on average explain 28% of the difference between the US and 11 European countries

Essays in quantitative macroeconomics and international finance

This dissertation uses quantitative dynamic models to study two separate questions in international finance and international labor markets. In Chapter 2, we build a two-country two-good incomplete markets general equilibrium model of international portfolio choice, and use it to study global imbalances, in particular the large negative net foreign asset position, and international portfolio composition of the United States. We show that the “exorbitant privilege” of the US (ability to borrow in domestic currency) and lower volatility of macroeconomic shocks that the US has experienced since mid-80s can account for a large part of the negative net foreign position of the US, and also generate a realistic portfolio structure. In Chapter 3, we study the differences in labor supply between the US and Europe. Using micro data from the US and eight European countries, we document that the difference between the US and Europe is mainly driven by the labor supply of women. European women work less than American women, whether it is single women, married women, or women with and without children. Using a larger number of countries, we also document that there is a strong correlation between divorce rates and female employment rates across countries and across time. A recent literature, including Prescott (2004) and Rogerson (2005), argues that differences in labor supply between the US and Europe can largely be explained by differences in tax rates. We use tax data from the OECD to develop tax schedules for a sample of 17 countries. The empirical correlation between hours worked and different measures of tax levels and progressivity is negative, however, weak. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms: 1) differences in marriage stability and 2) differences in tax systems on labor supply. There are three types of households; single males, single females and married households. Divorces and marriages occur stochastically. The main channel through which individual divorce and singlehood rates impact labor supply is by reducing the implicit insurance of marriage, and thereby providing incentives for individuals to invest in experience. We calibrate our model to US data and study how labor supply in the US changes as we introduce European tax systems, and as we replace the US divorce and marriage rates with their European equivalents. We find that the divorce and tax mechanisms combined on average explain 28% of the difference between the US and 11 European countries