Essays on Dynamic Macroeconomics
Chapter 1 is intended to analyze the welfare effects of changes in cross-sectional wage dispersion in a Mirrleesian framework. We first develop a static Mirrlees' optimal nonlinear income tax model to study how increased wage inequality affects the expected lifetime utility and consumption and leisure inequality. The model reveals that the impact of a change crucially depends on the initial degree of wage dispersion. We then compare the benchmark economy with two extreme cases: an economy with full insurance and autarky, and discuss how the welfare effects of rising wage dispersion differ with respect to different types of market structures. Finally we present a calibrated dynamic version of the model to examine whether the characteristics we find in the static model are also observed in the dynamic framework, and compute the welfare effects using the observed rise in wage inequality in the United States. According to our model, the rise in the wage dispersion over the last 30 years had a positive impact on the social welfare.Chapter 2 provides a description of the macroeconomic aftermath of natural disasters, specifically tracing the economic growth response in the wake of these events. Its purpose is to contribute to the analysis of the path of adjustment and recovery by tracing the response of gross domestic product (GDP) growth--both aggregated and disaggregated into its agricultural and non-agricultural components--to four types of natural disasters: droughts, floods, earthquakes, and storms. We use a methodological approach based on pooling the experiences of various countries over time. It consists of vector autoregressions in the presence of endogenous variables and exogenous shocks (VARX), applied to a panel of cross-country and time series data. The analysis finds heterogeneous effects on a variety of dimensions. First, the effects of natural disasters are stronger on developing than on advanced countries. Second, not all natural disasters are alike in terms of the growth response they induce, and some can even have positive effects on economic growth. Third, the timing of the growth response varies with both the type of natural disaster and the sector of economic activity.
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