Politico-economic inequality and the comovement of government purchases

Bachmann, Rüdiger; Bai, Jinhui

doi:10.1016/j.red.2012.09.008

Cited by 36 publications

(22 citation statements)

References 33 publications

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“…5 Random discounting is used in Smith (1997, 1999), Mukoyama and Şahin (2006), Erosa and Koreshkova (2007), Hendricks (2007), Krusell et al (2009), Bachmann andBai (2013), Carroll et al (2017), andHubmer et al (2016), among others. In Piketty and Zucman (2015) agents are subject to idiosyncratic saving shocks.…”

Section: Related Literaturementioning

confidence: 99%

Wealth Distribution with Random Discount Factors

Toda

2017

SSRN Journal

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It is well-known that empirical wealth distributions have Pareto tails. To explain this fact, the quantitative macro literature has occasionally assumed that agents have random discount factors. However, the fact that random discounting generates Pareto tails is a 'folk theorem' that has been shown only in very particular settings (e.g., i.i.d. environment or affine rule-of-thumb consumption rule). Using a highly stylized but fully specified heterogeneous-agent dynamic general equilibrium model of consumption and savings with an arbitrary Markovian dynamics for the discount factor, I prove that the upper and lower tails of the wealth distribution obey power laws and characterize the Pareto exponents. I also discuss a numerical example and show that there is no clear relationship between the return on wealth and inequality and that the Pareto exponent is highly sensitive to the persistence of the discount factor process.

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Section: Related Literaturementioning

confidence: 99%

Wealth Distribution with Random Discount Factors

Toda

2017

SSRN Journal

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“…The fact that the dynamic correlogram between public consumption and output/private consumption is tilted toward public consumption lagging the cycle suggests implementation lags. We also show that without a second shock, a representative agent model overshoots the level of the correlogram (see Bachmann and Bai (2013), for an alternative story in a heterogeneous agent framework). Finally, the persistence numbers suggest the budget implementation costs we use.…”

Section: Factsmentioning

confidence: 68%

“…3 First, our paper belongs to a literature on the endogenous responses of government spending to economic shocks. A number of authors have studied the amplification and propagation mechanisms of public expenditure in response to aggregate shocks, including total factor productivity (TFP) shocks (Ambler and Paquet (1996), Barseghyan, Battaglini, and Coate (2010), Debortoli and Nunes (2010), Azzimonti and Talbert (2011), Bachmann and Bai (2013)), preference shocks (Battaglini and Coate (2008), Azzimonti, Battaglini, and Coate (2010), Yared (2010)), commitment shocks (Debortoli and Nunes 3 A complementary literature on endogenous public policy focused on deterministic policy dynamics: in addition to KKR, see Krusell, Quadrini, and Rios-Rull (1997), Krusell and Rios-Rull (1999), Hassler et al (2003Hassler et al ( , 2005, Corbae, D'Erasmo, andKuruscu (2009), Martin (2010), Azzimonti (2011), Lagunoff (2011), andSong, Storesletten, andZilibotti (2012). (2010,2013)), and political uncertainty shocks (Woo (2005), Azzimonti and Talbert (2011)).…”

Section: Related Literaturementioning

confidence: 99%

Public consumption over the business cycle

Bachmann

Bai

2013

Quantitative Economics

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What fraction of the business cycle volatility of government purchases is accounted for as endogenous reactions to overall macroeconomic conditions? We answer this question in the framework of a neoclassical representative household model where the provision of a public consumption good is decided upon endogenously and in a time-consistent fashion. A simple version of such a model with aggregate productivity as the sole driving force fails to match important features of the business cycle dynamics of public consumption, which comes out as not as volatile and persistent as in the data and too synchronized with the cycle. We add implementation lags and implementation costs in the budgeting process to the model, plus taste shocks for public consumption relative to private consumption, and achieve a better fit to the data. All these ingredients are essential to improve the fit. In our baseline specification 50% of the variance of public consumption is driven by aggregate productivity shocks.

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“…2 Finally, there are aggregate conditions that relate supply and demand in each of three markets -the markets for capital, labor, and "goods". First, the firm must hire all the capital and labor supplied by households (these conditions are ensured by variations in r and w).…”

Section: Modelmentioning

confidence: 99%