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Working Paper
Time Averaging Meets Labor Supplies of Heckman, Lochner, and Taber
We incorporate time-averaging into the canonical model of Heckman, Lochner, and Taber (1998) (HLT) to study retirement decisions, government policies, and their interaction with the aggregate labor supply elasticity. The HLT model forced all agents to retire at age 65, while our model allows them to choose career lengths. A benchmark social security system puts all of our workers at corner solutions of their career-length choice problems and lets our model reproduce HLT model outcomes. But alternative tax and social security arrangements dislodge some agents from those corners, bringing ...
Working Paper
Optimal Dynamic Tax-Transfer Policies in Heterogeneous-Agents Economies
In the design of an optimal tax-transfer system, there are two complementary conventional wisdoms: the labor-efficiency argument and the debt-efficiency argument. The former emphasizes the trade-off between redistribution and distortions in the labor market, while the latter emphasizes the trade-off between gains from monopoly rents and distortions in the asset market. We use an analytically tractable infinite-horizon model with both ex-ante and ex-post heterogeneity to show that neither argument is complete in the design of the tax-transfer system. Instead, in Aiyagari-type models the ...