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12. Benchmarking Global Optimizers.

Author

Arnoud, Antoine, Guvenen, Fatih, and Kleineberg, Tatjana

Subjects
OPTIMIZATION algorithms, BENCHMARKING (Management), PANEL analysis, CALIBRATION, PARALLELIZING compilers
Abstract

Benchmarking Global Optimizers* Antoine Arnoud? Fatih Guvenen? Tatjana Kleineberg§ October 19, 2023 Abstract We benchmark six global optimization algorithms by comparing their performance on challenging multidimensional test functions as well as on a method of simulated moments estimation of a panel data model of earnings dynamics. Five of the algorithms are from the popular NLopt open-source library: (i) Controlled Random Search with local mutation (CRS), (ii) Improved Stochastic Ranking Evolution Strategy (ISRES), (iii) Multi-Level Single-Linkage (MLSL), (iv) Stochastic Global Optimization (StoGo), and (v) Evolutionary Strategy with Cauchy distribution (ESCH). The sixth algorithm is TikTak, which is a multistart global optimization algorithm used in some recent economic applications. For completeness, we add three popular local algorithms to the comparison--the Nelder-Mead downhill simplex algorithm, the Derivative-Free Nonlinear Least Squares (DFNLS) algorithm, and a popular variant of the Davidon-Fletcher-Powell (DFPMIN) algorithm. To give a detailed comparison of algorithms, we use benchmarking tools recently developed in the optimization literature. We find that the success rate of many optimizers varies dramatically with the characteristics of each problem and the computational budget that is available. Overall, TikTak is the strongest performer both on the test functions and the economic application. The next-best performing optimizers are StoGo for the test functions and MLSL and ISRES for the economic application. [ABSTRACT FROM AUTHOR]

Published
2023
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34. 2022-14 Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation

Author

Guvenen, Fatih, Kambourov, Gueorgui, Kuruscu, Burhan, Ocampo, Sergio, and Chen, Daphne

Subjects
Pareto tail, power law models, Economics, capital income tax, rate of return heterogeneity, wealth tax, optimal taxation, wealth inequality
Abstract

How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent return heterogeneity, we revisit this question. With heterogeneity, the two tax systems typically have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare. Turning to optimal taxation, the optimal wealth tax (OWT) is positive and yields large welfare gains by raising efficiency and lowering inequality. In contrast, the optimal capital income tax (OKIT) is negative—a subsidy—and delivers lower welfare gains than OWT, owing to the welfare losses from higher inequality. Furthermore, when the transition path is considered, the gains from OKIT turn into significant welfare losses for existing cohorts, whereas OWT continues to deliver robust welfare gains. These results suggest that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.

Published
2022

37. Income risk over the life cycle and the business cycle: New insights from large datasets

Author

Guvenen, Fatih

Subjects
Personal income -- Research, Labor market -- Research, Business cycles -- Research, Wages -- Research, Salary, Business, general, Business, Economics
Abstract

Millions of young men and women enter the labor market annually. Over the next 40 years, each of them goes through a unique journey that involves surprises as well as [...]

Published
2016

48. Macroeconomics with heterogeneity: a practical guide

Author

Guvenen, Fatih

Subjects
John Wiley & Sons Inc. -- Forecasts and trends, American Economic Review (Periodical), Book publishing -- Forecasts and trends, Macroeconomics, Market trend/market analysis, Banking, finance and accounting industries, Economics
Abstract

What is the origin of inequality among men and is it authorized by natural law? --Academy of Dijon, 1754 (Theme for essay competition) The quest for the origins of inequality [...]

Published
2011

50. Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective

Author

Guvenen, Fatih

Subjects
Business cycles -- Analysis, Financial markets -- Analysis, Banking, finance and accounting industries, Economics
Abstract

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2005.06.001 Byline: Fatih Guvenen Abstract: In this paper we reconcile two opposing views about the elasticity of intertemporal substitution (EIS). Empirical studies using aggregate consumption data typically find the EIS to be close to zero, whereas calibrated models designed to match growth and fluctuations facts typically require it to be close to one. This contradiction is resolved when two kinds of heterogeneity are acknowledged: one, the majority of households do not participate in stock markets; and two, the EIS increases with wealth. We introduce these two features into a standard real business cycle model. First, limited participation creates substantial wealth inequality as in the U.S. data. Consequently, the properties of aggregates directly linked to wealth (e.g., investment and output) are mainly determined by the (high-EIS) stockholders. Since consumption is much more evenly distributed than is wealth, estimation from aggregate consumption uncovers the low EIS of the majority (i.e., the poor). Author Affiliation: Department of Economics, University of Rochester, 216 Harkness Hall, Rochester, NY 14627, USA Article History: Received 21 March 2005; Revised 19 May 2005; Accepted 24 June 2005 Article Note: (footnote) [star] Special thanks to Tony Smith and Per Krusell for their advice and encouragement. For helpful conversations and comments, I thank Daron Acemoglu, Aydogan Alti, Olivier Blanchard, Jeremy Greenwood, Robert Hall, Lars Hansen, Robert King (the Editor), Torsten Persson, David Laibson, Nick Souleles, Stan Zin, an anonymous referee, as well as the seminar participants at Carnegie-Mellon, Chicago GSB, IIES at Stockholm University, Koc University, MIT, Penn State, Queen's, Richmond FED, Rochester, Sabanci University, Upenn, UCSD, the NBER Economic Fluctuations and Growth Meeting, the Minnesota Macroeconomics Workshop, and the Stanford SITE conference. An earlier version of this paper was circulated under the title 'Mismeasurement of the Elasticity of Intertemporal Substitution: The Role of Limited Stock Market Participation.'

Published
2006

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