I investigate a simple continuous-time overlapping generations model with a neoclassical production function. I demonstrate that the degree of wealth inequality is positively related to the difference between the real interest rate r and the growth rate of income g, and if g falls, the r – g gap widens and inequality worsens. I also argue that a wealth tax reduces the wealth inequality. All these results are consistent with the famous predictions advanced by Thomas Piketty in Capital in the Twenty-First Century (2014).

We examine technical efficiency in the Middle East and North Africa (MENA). In addition to economic indicators, political and social ones play a role in development and efficiency profiles. The MENA have been characterized by increasing economic efficiency over time but with marked polarization. We analyze and nest many key hypotheses, e.g., the contributions of religion, of natural resources, demographic pressures, human capital, etc. The originality of our contribution is the use of a large data set (including principal components), and extensive robustness checks. It should set a comprehensive benchmark and cross-check for related studies of development and technical efficiency.

In this paper, I explore in an overlapping generations framework, a mechanism motivating a neurobiological poverty trap. Poverty causes stress and depression in individuals susceptible to depression. Poor and depressed individuals discount the future at a higher rate and invest less in the human capital of their children than mentally healthy or rich individuals. This gene–environment interaction generates a vicious cycle in which poor individuals inherit not only susceptibility to depression, but also stress and poverty. I show that a successful one-time intervention has the power to permanently eliminate the neurobiological poverty trap.

This paper builds a theoretical framework for studying migration and education in developing countries. Migration and education decisions are affected by migrants' wealth constraints. Technology and migration costs determine the pattern of migration through level of education, income, and wealth inequality. The model predicts that in the first stages of technological development, migration rates increase, as does economic inequality over time, for high migration costs. At more advanced stages of development, migration rates and wealth inequality decline. I show that these predictions are in line with the data.

Over the past few decades, both the relative price of housing structures and housing services consumption relative to nondurables increased significantly in the United States. This paper explores demand-side factors such as an increase in idiosyncratic earnings risks and changes in housing institutions as potential explanations for the phenomenon. We build a general equilibrium incomplete markets model of housing and compare two steady states that correspond to the 1967 and 2000 U.S. economies. Our model can generate the simultaneous increase in the relative price of houses and housing services consumption relative to nondurables. We find that the increased earnings risks are crucial in replicating this pattern.

I consider an economy growing along the balanced growth path that is hit by an adverse shock to its capital accumulation process. The model integrates efficiency wages due to imperfect monitoring of the quality of labor in a search and matching framework with methods of dynamic general equilibrium analysis. I show that, depending on the firms' abilities to assess workers' performance, the discipline device role of unemployment may account for sharp declines in employment and jobless recoveries driven by exceptional increases in the work effort of employees. The model also explains why rigid real wages may prevail in equilibrium: the large movements in unemployment are indeed associated with real wage rigidity, which is generated endogenously by efficiency wages.

A challenge that faces many advanced economies is how to finance age-related spending programs as the population ages. In this paper, we investigate two policy options–pension cuts and tax hikes–to mitigate fiscal pressure arising in the special context of Australia, whose population is ageing fast while growing substantially in size due to immigration. Using a computable overlapping generations model, we find that while both policy reforms can achieve a similar fiscal goal, they lead to different distributional and welfare effects across income groups over time. Future generations prefer pension cuts, whereas current generations prefer tax hikes to finance government spending commitments. Moreover, within the tax hike option, taxing income or consumption results in opposing macroeconomic and welfare effects. Indeed, our opposing intra- and inter-temporal welfare outcomes highlight some political complexity when devising a more sustainable tax-transfer system.

This article aims at studying a general equilibrium model with overlapping generations that incorporates inherited tastes (aspirations) and endogenous longevity. The existence of standard-of-living aspirations transmitted between two subsequent generations in a context where the individual state of health depends on public investments in health has some remarkable consequences at the macroeconomic level. First, aspirations allow escaping from the well-known poverty trap scenario described by Chakraborty (2004). Second, the steady-state equilibrium may be destabilized through a super-critical Neimark–Sacker bifurcation when the health tax rate is set at too high or too low a level. This causes endogenous fluctuations in income and longevity.

In an exogenous-growth economy with overlapping generations, the Cobb–Douglas production, any positive life-cycle productivity, and time-separable constant elasticity of substitution (CES) utility, we analyze local stability of a balanced growth equilibrium (BGE) with respect to changes in consumption endowments, which could be interpreted as a transfer policy. We show that generically, in the space of parameters, equilibria around a BGE are locally unique and are locally differentiable functions of endowments, with derivatives given by kernels. Furthermore, those equilibria are stable in the sense that the effects of temporary changes decay exponentially toward ±∞.

This paper proposes a new theoretical framework aimed at understanding the link between technological change, skill premium, and employment. We build an endogenous growth model of directed technological change with vertical research and development (R&D) in which low-skilled workers might be organized in a trade union. This union can act as a monopoly seller of labor and decide unilaterally the low-skilled wage, or as a managerial union that bargains wage and employment with the employers' federation, i.e., firms. Our results suggest that (i) the impacts of trade unions on technological-bias and on the level of (un)employment crucially depend on their type and preferences; and (ii) trade unions can actually increase low-skilled wages and employment if they have some bargaining power and are employment-oriented. Furthermore, our framework provides some highlights to explain the relationship between wage dispersion and the deunionization process that occurred in the United Kingdom and the United States during the 1980s.

Money-demand specifications exhibit instability, especially for long spans of data. This paper reconsiders the welfare cost of inflation for the US economy using a flexible time-varying (TV) cointegration methodology to estimate the money-demand function. We find evidence that the TV cointegration estimation provides a better fit of the actual data than a time-invariant estimation and that the throughout unitary income elasticity only exists for the log–log form over the entire sample period. Our estimate of the welfare cost of inflation for a 10% inflation rate lies in the range of 0.025–0.75% of gross domestic product (GDP) and averages 0.27%. In sum, our findings fall well within the ranges of existing studies of the welfare cost of inflation. We find that the welfare cost averages 7.4% higher during expansions than recessions for 10% inflation rate. Finally, the interest elasticity of money demand shows substantial variability over our sample period.

This paper examines optimal policy in a macroeconomic model with collateral constraints. Binding collateral constraints yield inefficient competitive equilibrium allocations because they distort the optimal utilization of real resources. I identify the set of policy instruments that can be used by a Ramsey planner to achieve the first-best and the second-best (i.e., constrained planner's) allocations. A system of distortionary taxes on capital and labor income, along with direct lump-sum transfers among borrowers and lenders replicates the first-best outcome. The tax rates correct for the marginal distortions, whereas the direct lump-sum transfers perform income redistributions among the agents. In absence of direct lump-sum transfers, the distortionary taxes have an additional role, i.e., to perform implicit income transfers, and only second-best outcomes are attainable. I also derive the optimal policy in response to real and financial shocks, and show how the policy recommendations differ depending on the set of policy instruments available.

This paper examines the relationships of income with education and health using heterogeneous panel cointegration techniques to account for the potential cross-country heterogeneity in the effects of education and health. Our main results are: (i) education and health are, on average, income-enhancing; (ii) for different schooling levels, although primary education lowers income, both secondary and tertiary education raise income with larger impacts for the former than the latter, on average; (iii) there is considerable heterogeneity in the effects of education and health on income across countries; and (iv) the effect of education (health) on income tends to be greater (smaller) in countries with higher levels of development, greater (less) trade openness, less abundant natural resources, less corruption, higher levels of democracy, and a more homogeneous society.

This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, this paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an allocation that maximizes welfare when a social planner distributes resources and forces an old agent to work and retire as she wants. The second-best allocation is one that maximizes welfare when a social planner can use only pay-as-you-go social security in a decentralized economy. This paper finds a range of an old agent's labor productivity such that the first-best allocation is achieved in a decentralized economy. This finding differs from that in Michel and Pestieau [“Social security and early retirement in an overlapping-generations growth model”, Annals of Economics & Finance, 2013], which notes that the first-best allocation cannot be achieved in a decentralized economy.

This paper revisits the long-run relationship between inflation and economic growth by exploring the impact of inflation on investment. I illustrate that inflation may have a positive effect on growth by mitigating the liquidity risks of investment projects. Together with the traditional effect of the “inflation tax” on investment, a hump-shaped relationship between inflation and economic growth can be obtained in a calibrated model, which is consistent with the US postwar data. Sensitivity analysis suggests that the degree of financial development and the magnitude of the aggregate liquidity demand help explain the mixed empirical findings.