Seminar Vol. 165

Title: The Welfare and Distributional Effects of Fiscal Volatility: A Quantitative Evaluation

Speaker: Jinhui Bai, Washington State University

Time: May 31st, 2019 15:00–16:30

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Jinhui Bai is an Associate Professor of Economics at the School of Economic Sciences, Washington State University. He received his Ph.D. degree in Economics from Yale University in 2006. Jinhui Bai's main research interests are in Macroeconomics, Political Economy, an Economic Theory. He published his work in such journals as Quantitative Economics, Review of Economic Dynamics, International Economic Review, Review of Economic Studies, and Journal of Mathematical Economics. 

Abstract:

This study explores the welfare and distributional effects of fiscal volatility using a neoclassical stochastic growth model with incomplete markets. In our model, households face uninsurable idiosyncratic risks in their labor income and discount factor processes, and we allow aggregate uncertainty to arise from both productivity and government purchases shocks. We calibrate our model to key features of the U.S. economy, before eliminating government purchases shocks. We then evaluate the distributional consequences of the elimination of fiscal volatility and find that, in our baseline case, welfare gains increase with private wealth holdings.