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Public Finance in Macroeconomics: Heterogeneous Agent Models (ECO-AD-PUBFIN)

ECO-AD-PUBFIN

Purpose

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Description

Course Abstract (including student assessment):
We will study classical public finance questions on taxation and the design of social insurance in variants of three ”workhorses” of dynamic macroeconomics in general equilibrium:
•           the neoclassical representative agent model,
•           the Aiyagari-Bewley-Huggett-Imrohoroglu models with intra-generational heterogeneity,
•           and overlapping generations (OLG) models, featuring intra- as well as inter-generational heterogeneity.
While all these types of models will be analysed, most room will be given to life-cycle economies (OLG applications). For this reason, we will start out by extensively studying partial equilibrium models of household behaviour, e.g. the dynamics of consumption, savings, labour supply and portfolio allocation decisions over the life-cycle. Once we roughly understand these models, we will turn to general equilibrium models. Our general equilibrium discussion will then cover models with idiosyncratic risk (e.g., individual unemployment shocks that, in each time period, affect only a fraction of agents in the economy) and models with aggregate risk (e.g., productivity shocks that simultaneously affect all agents).
During the course, (i) we will seek to compare certain model features with the data, (ii) we will implement most of these models on the computer and (iii) we will analyse policy questions. Among these policy questions there are issues related to the distribution of income, wealth and consumption both within and across generations, traditional public finance questions and how demographic change will affect the economy in a global world. Towards the end of the course you will have learned how to solve simple models analytically and more complex models numerically and how to use these models for policy analysis.




 

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