Managing Inequality over the Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks

Xavier Ragot

No 1090, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We present a projection theory on the space of idiosyncratic histories for heterogeneous-agents models. This allows solving for optimal Ramsey policies in heterogeneous-agent models with aggregate shocks, using a Lagrangian approach. In addition, it allows improving current simulation methods using perturbation techniques, by using more steady-state information. We apply this to study the optimal level distorting tax on labor and unemployment insurance over the business cycle in a production economy. In the quantitative exercise, the average optimal replacement rate is 10% higher than the one implies by a sufficient-statistics approach, due to saving distortions. Moreover, the optimal replacement rate is countercyclical.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: MANAGING INEQUALITY OVER BUSINESS CYCLES: OPTIMAL POLICIES WITH HETEROGENEOUS AGENTS AND AGGREGATE SHOCKS (2022)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2022)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2022)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2022)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2020)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2020)
Working Paper: Managing Inequality over Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks (2020)
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