Seminario "Micro Risks and (Robust) Pareto Improving Policies"

Miércoles 6/12, 12h

Presentado por Cristina Arellano
We provide sufficient conditions for the feasibility of robust Pareto-improving (RPI) fiscal policies in the class of incomplete markets models of Bewley-Huggett-Aiyagari and when the interest rate on government debt is below the growth rate (r < g). We allow for arbitrary heterogeneity in preferences and income risk and a potential wedge between the return to capital and to government bonds. An RPI improves risk sharing and can induce a more efficient level of capital. We show that the elasticities of aggregate savings to changes in interest rates are the crucial ingredients that determine the feasibility of RPIs. We establish that government debt and capital investment associated with an RPI may be complements along the transition, rather than the traditional substitutes. Our analysis shifts the focus of fiscal policy in incomplete markets from explicitly redistributive policies to using government bonds and simple subsidies to robustly improve welfare of all agents at all points in time.

*Jointly written with Mark Aguiar and Manuel Amador

Cristina Arellano

Ph.D. in Economics, Duke University.
Monetary Advisor, Federal Reserve Bank of Minneapolis. Adjunct Associate Professor, University of Minnesota. Her main research interests are international macroeconomics, sovereign debt, business cycles and fiscal policy. Her work has been published in journals such as Review of Economic Studies, Journal of Political Economy and American Economic Review.

Lugar: Aula A401 | Campus Di Tella
Contacto: Departamento de Economía