To attend the conference, please contact the secretariat Christelle Fotso Tatchum
- Patrick Fève, Toulouse School of Economics, UT Capitole, Supervisor
- Fabrice Collard, CNRS, Toulouse School of Economics, President
- Corina Boar : Assistant Professor, New York University Rapporteure
- Adrien Auclert :Assistant Professor, Stanford University Rapporteur
This dissertation presents three self-contained essays on topics in macroeconomics. In Chapter 1, Alexandre Gaillard and I study the macroeconomic implications of stabilization policies when inequality, business cycles, and long-run technology growth interact. Our main finding is that discretionary policies that stabilize output in the short run by expanding aggregate demand may, at the same time, harm the long-run recovery from economic downturns by reducing innovative investment. We develop our analysis in two parts: first, we use an analytical model to derive conditions under which a short- versus long-run stabilization tradeoff arises; second, we build a large-scale quantitative model of the US economy. To evaluate this potential tradeoff quantitatively, we consider a temporary extension in unemployment insurance duration as our leading example. When this policy is financed by higher tax progressivity, we quantify substantial short-run output stabilization gains with a multiplier of 1.20 after one year, which are, however, at the cost of a permanently lower long-run output with a multiplier of -0.20. To avoid such a tradeoff, our analysis suggests financing stabilization policies by issuing government debt or by shifting the tax incidence on middle-class households.
In Chapter 2, Alexandre Gaillard and I argue that the macroeconomic implications of wealth taxation depend on the underlying forces behind capital investment and wealth inequality. Empirically, wealth-rich households invest a higher fraction of their wealth into risky assets. This fact is the result of two distinct channels. Wealthy households may invest differently due to heterogeneity in a specific skill or risk tolerance (so-called type dependence) or because wealth itself induces wealthy households to undertake riskier investments (so-called scale dependence). First, we argue that several existing frameworks studying the macroeconomic implications of investment heterogeneity rest on a particular combination of type and scale dependence. Second, we show that their distinction is crucial for wealth taxation. In a quantitative incomplete markets model calibrated to the US economy, we find that both dependencies lead to opposite predictions regarding the desirability of wealth taxation. Under type dependence, by taxing the wealth of the richest households, only the fittest survive at the top, reinforcing the selection of agents with high investment skills among the rich. When returns to wealth reflect capital productivity, taxing wealth at a high rate is optimal because it raises productivity. Under scale dependence, a wealth tax reduces productive investments, making a wealth subsidy optimal. In a benchmark model calibrated to incorporate both channels, a positive wealth tax of 0.8% above an exemption threshold of 550K is optimal.
In Chapter 3, Li Yu and I study the impact of monetary policy on the credit allocation of globally operating banks in an open economy environment. We develop an analytical framework for global banking based on a portfolio approach. In the model, global banks allocate their lending to domestic and foreign borrowers for diversification benefits, but foreign lending is more uncertain due to cross-border information frictions. Managing uncertainty is costly and depends on banks’ profitability, which is driven by asymmetric margins between lending and deposit rates. As our main theoretical result, we show that the effect of expansionary monetary policy on banks’ lending allocation is state-dependent. In times of low interest rates and large balance sheets, a further cut in the interest rate decreases bank profitability and has opposite effects on domestic and foreign lending. Extending the model to a dynamic setup with nominal rigidities, we find that a persistently high home bias accompanies a prolonged period of low interest rates. Finally, we support these findings with novel empirical evidence.