Job Market Paper
Heterogeneous Saving Behavior and Permanent Income (2021)
Abstract: Do high permanent income households tend to accumulate a larger amount of wealth relative to income over the life cycle? Using Spanish household-level panel data from the Survey of Household Finances, I estimate permanent income for each household and document a positive and strong relationship between the latter and wealth-to-income ratios over the life cycle. In particular, the median household in the 9th decile and above of the permanent income distribution tends to exhibit wealth-to-income ratios at least 60% larger than the median household in the 2nd decile. To study the determinants of this non-homothetic behavior, I build a standard partial equilibrium life-cycle model of homothetic household consumption and saving behavior which, by construction, features homogeneous wealth accumulation relative to income. This serves as a benchmark to help investigate the quantitative contribution of different sources of non-homothetic behavior: the pension system, accidental and voluntary bequests, intergenerational transmission of ability, and preference heterogeneity. A calibrated version of this model for Spain shows that non-homotheticities stemming from the pension system and the transmission of wealth via bequests account, on average, for 70% of documented wealth- to-income ratios differences. However, these sources are not able to account for the large amount of wealth - relative to income - the top 20% of households accumulate. To this end, the model calibration approach requires of sizable amounts of preference heterogeneity at the top of the permanent income distribution.
Abstract: Do high permanent income households tend to accumulate a larger amount of wealth relative to income over the life cycle? Using Spanish household-level panel data from the Survey of Household Finances, I estimate permanent income for each household and document a positive and strong relationship between the latter and wealth-to-income ratios over the life cycle. In particular, the median household in the 9th decile and above of the permanent income distribution tends to exhibit wealth-to-income ratios at least 60% larger than the median household in the 2nd decile. To study the determinants of this non-homothetic behavior, I build a standard partial equilibrium life-cycle model of homothetic household consumption and saving behavior which, by construction, features homogeneous wealth accumulation relative to income. This serves as a benchmark to help investigate the quantitative contribution of different sources of non-homothetic behavior: the pension system, accidental and voluntary bequests, intergenerational transmission of ability, and preference heterogeneity. A calibrated version of this model for Spain shows that non-homotheticities stemming from the pension system and the transmission of wealth via bequests account, on average, for 70% of documented wealth- to-income ratios differences. However, these sources are not able to account for the large amount of wealth - relative to income - the top 20% of households accumulate. To this end, the model calibration approach requires of sizable amounts of preference heterogeneity at the top of the permanent income distribution.
Work in Progress
Optimal Fiscal Policies and Sovereign Default under Incomplete Information - (draft coming)
Abstract: I study optimal tax, debt accumulation, and default policies in a model of incomplete information in which the government acquires endogenous partial information about the nature of shocks hitting the economy, while households fully observe the state of the world at any time. I assume the economy is hit by technology and preferences shocks. The methodological contribution of this paper is the introduction of incomplete information in a standard model of taxation and default to obtain endogenous tax rigidity, causing debt over-accumulation and higher spreads.
Abstract: I study optimal tax, debt accumulation, and default policies in a model of incomplete information in which the government acquires endogenous partial information about the nature of shocks hitting the economy, while households fully observe the state of the world at any time. I assume the economy is hit by technology and preferences shocks. The methodological contribution of this paper is the introduction of incomplete information in a standard model of taxation and default to obtain endogenous tax rigidity, causing debt over-accumulation and higher spreads.
A DGSE Model for LAC Countries - (IDB project)