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We propose a protocol for repeated bargaining where occasional periods of good outside opportunities yield improved outcomes but also higher breakout probabilities, yet there is a lot of risk sharing. Crucially, we only consider Markov perfect equilibria that have neither non payoff-relevant state variables that are costly to compute nor a contrived process of equilibrium selection.

Notre analyse demontre que le ratio monnaie-consommation augmente avec l’âge des menages et decroit avec la consommation, et que ce ratio a fortement augmente dans le contexte de tres bas taux d’interet des dernieres annees. Nous elaborons un modele a generations imbriquees de la detention de monnaie pour des motifs de transaction, dans lequel nous introduisons des effets d’âge (l’utilisation de la monnaie augmente avec l’âge des menages), des effets de cohorte (les jeunes generations font appel a des technologies financieres plus evoluees) et des effets temporels (les taux d’interet nominaux influent sur la detention de monnaie).

We build a variation of the neoclassical growth model in which households increased desire to save generate recessions. Our economy features three departures from the standard model: (1) goods markets (for nontradables) require active search from households wherein increases in consumption expenditures increase measured productivity; (2) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (3) labor markets have Nash bargaining wage setting and Mortensen-Pissarides search and matching frictions labor markets. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks.

In sticky wages models (either à la Calvo or à la Rotemberg), labor is solely determined by the demand side. However, a change of circumstances may make labor demand higher than agents’ willingness to work. We find that workers are required to work against their will between 15 percent and 30 percent of the time (with 5 percent wage markup, less with higher markups and in Rotemberg models). Estimating models with the minimum of the demand and supply of labor instead of the demand-determined quantity yields different and unappealing properties. Hence, special attention should be paid to possible violations of the labor supply constraint. (JEL E12, E24, E32, J22, J23, J31, J51)

This paper presents the position of the Latin American working group of the International Foundation for Integrated Care (IFIC). The working group brings together various Latin American actors and organizations in support of actions that facilitate the transformation of health systems in the region towards integrated systems that focus on people not as isolated individuals but as subjects of law in the complex social and environmental contexts where they live and interact. The working group proposes nine pillars of integrated care to be used as a conceptual framework for policy development and changes in practices: 1) shared vision and values; 2) population health; 3) people and communities as partners; 4) resilient communities; 5) capacities of human resources for health; 6) governance and leadership; 7) digital solutions; 8) aligned payment systems; and 9) public transparency. Based on these pillars, lines of work are proposed to strengthen alliances and networks, advocacy, research, and capacity-building, in order to help develop health and social systems that are effectively integrated and focused not only on people but also on communities in Latin America.Este artigo apresenta o posicionamento do grupo de trabalho latino-americano da Fundação Internacional de Cuidados Integrados (1) (IFIC, na sigla em inglês). A IFIC reúne diversos atores e organizações da América Latina com o fim de apoiar ações que facilitem a transformação dos sistemas de saúde na região para sistemas integrados e centrados nas pessoas, não como indivíduos isolados, mas como sujeitos de direito, nos complexos contextos sociais e ambientais em que vivem e participam. O grupo de trabalho propõe nove pilares de atenção integrada a serem utilizados como marco conceitual na elaboração de políticas e de mudanças nas práticas: 1) visão e valores compartilhados, 2) saúde das populações, 3) pessoas e comunidades como parceiros, 4) comunidades resilientes, 5) capacitação de talento humano em saúde, 6) governança e liderança, 7) soluções digitais, 8) sistemas de pagamento alinhados e 9) transparência perante a população. Com base nesses pilares, são propostas linhas de trabalho nas áreas de fortalecimento de alianças e redes, incidência política, pesquisa e capacitação, que contribuam para materializar na América Latina sistemas sociais e de saúde efetivamente integrados e centrados não só nas pessoas, como também nas comunidades.

Objetivo. Determinar qué características sociodemográficas y clínicas y antecedentes patológicos constituyen un mayor riesgo para tener infección del tracto urinario (ITU), según el estudio de casos/controles, en población diabética tipo 2. Material y MétOdOs. Estudio comparativo, transversal, retrospectivo y explicativo realizado en el servicio de medicina interna del Hospital Loayza el año 2016. Se revisaron historias de 163 pacientes diabéticos con ITU y 163 diabéticos sin ITU. Se aplicó ji cuadrado inicialmente y luego regresión logística con estadístico de Wald para análisis multivariado. resultadOs. Las características sociodemográficas no tuvieron relación estadística con la ocurrencia de ITU (p > 0,05). El tiempo de enfermedad ≥ 10 años (OR = 3,978 (IC95% 1,467-10,790); p = 0,007), la insuficiencia renal crónica (OR = 8,412 (IC95% 1,832-38,615), p = 0,006), la litiasis renal (OR = 10,604 (IC95% 2,144-52,459), p = 0,004), la vejiga neurogénica (OR = 12,290 (IC95% 1,447-104,386), p = 0,022), el uso de corticoides (OR = 17,850 (IC95% 3,789-84,087), p = 0,000), la ITU previa (OR = 27,757 (IC95% 9,280-83,027), p = 0,000) y la infección vaginal o la patología prostática (OR=4,958 (IC95% 2,149-11,439), p = 0,000) estuvieron asociados de forma independiente con la ocurrencia de ITU. COnClusión. Las características sociodemográficas no tienen relación estadística con ITU. Un tiempo de enfermedad de 10 años o más, la insuficiencia renal crónica, litiasis renal, vejiga neurogénica, uso de corticoides, ITU previa e infección vaginal o patología prostática están asociadas estadísticamente con la ocurrencia de ITU en la población de diabéticos tipo 2. Objective. To determine which sociodemographic characteristics, clinical and pathological antecedents constitute a greater risk to have urinary tractinfection (UTI), according to the case-control study, in type 2 diabetic population. Material and MethOds. comparative, cross-sectional, retrospective study and explanatory, performed in the Internal medicine service of Loayza Hospital in 2016. Charts of 163 diabetic patients with UTI and 163 diabetics without UTI were reviewed. Chi square was initially applied and then logistic regression with Wald statistic for multivariate analysis. results. The sociodemographic characteristics have no statistical relationship with the occurrence of UTI (p > 0,05). Disease time ≥ 10 years (OR = 3,978 (95%CI 1,467-10,790), p = 0,007), Chronic renal failure (OR = 8,412 (95%CI 1,832-38,615), p = 0,006), Kidney lithiasis (OR= 10,604 (95%CI 2,144-52,459), p = 0,004), neurogenic bladder (OR= 12,290 (95%CI 1,447-104,386), p = 0,022), corticosteroid use (OR= 17,850 (95%CI 3,789-84,087), p = 0,000), previous UTI (OR = 27,757 (95%CI 9,280-83,027), p = 0,000) and present vaginal infection or prostatic pathology (OR = 4,958 (95%CI 2,149-11,439), p = 0,000) were independently associated with the occurrence of ITUs. COnClusiOns. Sociodemographic characteristics have no statistical relationship with UTI. Disease time > = 10 years, chronic renal failure, renal lithiasis, neurogenic bladder, use of corticosteroids, previous UTI and presenting vaginal infection or prostatic pathology are statistically associated with the occurrence of UTI in type 2 diabetic population.

Omental infarction describes ischemic torsion of the distal portion of the omentum and constitutes an infrequent cause of acute abdominal pain in childhood of which few cases are known. Objec tive: To analyze through a clinical case the characteristics and management of this pathology, to consider this entity in the differential diagnosis of acute abdominal pain.An 11-year- old child consulted the emergency department due to a 48-hour history of continuous abdominal pain, which had progressively increased. On the physical examination, the patient presented pain in the right side of the abdomen and the epigastric area, with no signs of peritoneal irritation, and was overweight (BMI 91st percentile). Biochemical analysis showed a slight increase in c-reactive protein (CRP) 41.31 mg/L (reference value3.0 mg/L) without leukocytosis and normal ultrasound study, without visualization of the appendix. Due to persistent pain, increased CRP, and absence of appen dix visualization in the ultrasound, the study was completed with an abdomen and pelvis CT scan which showed trabeculation of the fat of the anterior right subhepatic space, thus diagnosing omental infarction. The patient was hospitalized for conservative management with analgesia, anti-inflamma tory drugs, and fluid therapy, presenting good evolution in the first 48 hours.Omental infarction is an infrequent cause of acute abdominal pain in childhood. Imaging studies play a funda mental role in the differential diagnosis of this entity with other clinical conditions of similar course, thus avoiding unnecessary surgical interventions.

We pose technology shocks where the innovation is biased towards more recently installed plants. On one extreme, the shock is like a neutral technological shock, while on the other end it resembles investment-specific technological shocks. We embed these shocks in a model with putty–clay technology and estimate it requiring that the model replicates the volatility properties of the Solow residual and the overshooting property of the labour share of output. Our estimates show that putty–clay nature of technology, a time bias towards new plants and competitive wage setting replicate well the overshooting property.

What is the role of credit scores in credit markets? We argue that it is a stand in for a market assessment of a person’s unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person’s type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both credit market data and the evolution of individual’s credit scores. We find a 3% difference in patience in almost equally sized groups in the population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, the benefits of bankruptcy forgiveness are outweighed by the higher interest rates associated with lower incentives to repay.

To slow COVID-19, many countries have shut down part of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have most to lose. In this paper, we build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young, retired), by sector (basic, luxury), and health status. Disease transmission occurs in the workplace, through consumption, at home, and in hospitals. We study the optimal economic mitigation policy for a government that can redistribute across individuals, but where redistribution is costly. Optimal redistribution and mitigation policies interact, and more modest shutdowns are optimal when redistribution is more costly. We find that the shutdowns that were implemented in mid-April were too extensive, but a partial shutdown should remain in place through the fall. A deeper and longer shutdown is preferred if a vaccine is imminent.

Evaluate the use, subjective and objective under-standing of the GDA frontal labeling to assist the population towards making healthy decisions regarding the products they consume.The use of nu-tritional information contained in products ́ packages (GDA, nutritional information table, and list of ingredients), as well as the subjective and objective comprehension of the GDA.A total of 43 157 people were interviewed. Amid the labels, the nutritional table was read more frequently (11.1%). 24.6% (IC95%: 23.9-25.3) and 41.2% (IC95%: 40.4-42.1) of the interviewees classified products correctly as not healthy and high in sodium, respectively. These outcomes were smaller between the elderly, lower socioeconomic levels, lower educational levels, and rural areas.The results show that the GDA labeling is not useful to support the vulnerable population to make healthy decisions.Evaluar el uso y la comprensión subjetiva y ob-jetiva del etiquetado frontal Guías Diarias de Alimentación (GDA) para ayudar a la población a tomar decisiones salu-dables respecto a los productos que consume.Se evaluó el uso de la información nutrimental disponible en el empaque (GDA, tabla de información nu-trimental y lista de ingredientes), así como la comprensión subjetiva y objetiva del GDA, en personas mayores de 20 años. Resultados. Se entrevistó a 43 157 personas. La tabla.Se entrevistó a 43 157 personas. La tabla nutrimental fue la etiqueta más utilizada (11.1%). Apenas 24.6% (IC95%: 23.9-25.3) y 41.2% (IC95%: 40.4-42.1) clasificó correctamente el producto como nada saludable o alto en sodio, respectivamente. Estas proporciones fueron menores en adultos mayores, personas con menor nivel educativo, nivel socioeconómico bajo y área rural.Los resultados muestran que el etiquetado GDA no es útil para apoyar a la población vulnerable a realizar elecciones saludables.

To slow the spread of COVID-19, many countries are shutting down non-essential sectors of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have the most to lose. In this paper, we build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young and retired), by sector (basic and luxury), and by health status. Disease transmission occurs in the workplace, in consumption activities, at home, and in hospitals. We study the optimal economic mitigation policy of a utilitarian government that can redistribute across individuals, but where such redistribution is costly. We show that optimal redistribution and mitigation policies interact, and reflect a compromise between the strongly diverging preferred policy paths of different subgroups of the population. We find that the shutdown in place on April 12 is too extensive, but that a partial shutdown should remain in place through July.

Los modelos matemáticos epidemiológicos, juegan un rol importante para análisis del comportamiento cualitativo de la dinámica de transmisión sexual VIH (SIDA) para población heterosexual activa, pacientes que acuden al programa TARGA del Hospital Santa Rosa ciudad de Puerto Maldonado, el trabajo es tipo básica, no experimental, nivel descriptivo y se aplicó enfoque cualitativo-cuantitativo, inductivo-deductivo, demostrativo aplicando el teorema de Hartman –Grobman y concluye: El modelo SIRS endémico incluye parámetros de pérdida de efectividad y la pérdida a inmunidad por abandono al tratamiento, resultando más real y dinámico, que modelo SIR. Los autovalores de la matriz linealizada tienen parte real no nulo en puntos de singularidad hiperbólica estable, inestable o sillas, esto garantiza la existencia y unicidad de solución del problema de valor inicial, los diagramas de fase son invariantes cuando son contraídas o expandidas y son localmente topológicamente conjugadas, la solución cualitativa de modelos SIR y SIRS para la demografía de varones y mujeres, permite afirmar población susceptibles decrece entonces crece la población de infectados y si la población de infectados decrece entonces la población de removidos aumenta. La edad promedio de adquirir SIDA es 31 años, esto implica, que el contagio fue antes de 21 años de ambos géneros aproximadamente, es más, el primer caso del VIH, se localizó en el Distrito de Laberinto de la provincia de Tambopata en el año 1993. El empleo de modelos matemáticos ha crecido significativamente en últimas décadas y ayudan a establecer medidas eficaces de control y erradicación de la enfermedad infecciosa.

We present a novel way to model technological shocks, with the feature that it can be biased towards more recently installed production units. We show that at one extreme, the shock is like a neutral technological shock, while at the other end of the spectrum, it resembles investment specific technological shocks, since it affects newly created machines the most. To make these ideas operational, we embed our proposed shocks in a model with putty-clay technology (where the notion of new and old firms is clear). We estimate the process for the shocks requiring that the model replicates the volatility properties of the Solow residual and the overshooting property of the labor share of output. Our estimates point to three factors to be capable of replicating well such overshooting property: putty-clay nature of technology, a time bias in the shocks towards new plants and competitive wage setting.

In this paper we produce a theory of partial default applicable to sovereign debt. The theory uses Markovian equilibria and the notion that circulating unpaid coupons of any given country courtail its productive capabilities. As a consequence no issues of equilibrium selection appear in the analysis. The theory allows for renegotiation of the debt which occurs in particular dire circumstances. This theory, in contrast with the ones in the literature, is consistent with the main facts of international debt crises, which we document.

This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually.

We explore the effects of financial shocks in heterogeneous agent economies with aggregate savings and with frictions in some consumption markets, where demand contributes to productivity. Households of various wealth and earnings levels search for goods at different intensities and pay different prices in differently crowded markets. Increases in savings arising from a financial shock that tightens the borrowing limit trigger a recession via two channels: 1) the reduction in the consumption of goods that are subject to search frictions reduces productivity and output; 2) because the poorest households are more affected by the shock, consumption tilts toward the richest households, causing an additional reduction in output and productivity. We model fixed prices in a competitive search environment and show how price rigidities dramatically exacerbate the recession.

The paper explores to what extent demand shocks can solve the open economy puz- zles. To this purpose, we pose a shopping model structure a la Bai, R Ì Ä±os-Rull, and Storesletten (2011) on top of an otherwise standard two-country international real busi- ness cycle model. Shopping for goods take effort, which prevents perfect matching between potential customers and producers. Larger demand in a country increases its consumption for both home and foreign goods. Real exchange rate and terms of trade depreciate in response to the larger demand. Larger demand also induces more shop- ping and so higher output and TFP. Thus, demand shock under our shopping model generates countercyclical terms of trade and solves the Backus-Smith puzzle.

To keep record of the knowledge and use of information of the different food labels on industrialized products in Mexico.We administered a semi-structured survey-developed by research¬ers free of conflict interestin a subsample of the National Health and Nutrition Survey, 2016. This survey was previously validated and piloted in different populations of varying socio¬economic levels and age and country regions.Data was collected from a total of 8 667 individuals ≥20 years of age. The most frecuent type of label on industrialized foods and beverages was the nutrient table with 41.5% (95%CI 36.9- 46.3) and the least used was the nutrient seal, 4.3% (95%CI 3.1-5.7).It is of critical importance that the regulating authorities and the Ministry of Health, implement criteria that guarantee the compliance of recommendations promulgated in official documents. As well as the standarization of the percentage of recommended sugar intake based on WHO standards or lower considering the epidemiological alert for diabetes that the country is experiencing.Documentar el conocimiento y uso de la información de las diferentes etiquetas colocadas en los productos industrializados en México.En una submuestra de la Encuesta Nacional de Salud y Nutrición de Medio Camino 2016, se aplicó un cuestionario semiestructurado, desarrollado por investigadores libres de conflicto de interés, previamente validado y piloteado en población de diferentes estratos socioeconómicos, grupos de edad y regiones del país.Se entrevistó a 8 667 adultos ≥20 años de edad. El etiquetado más utilizado para la elección de alimentos y bebidas industrializados fue la “tabla nutrimental” 41.5% (IC95% 36.9-46.3) y el de menor uso el “sello nutrimental” 4.3% (IC95% 3.1-5.7).Es de suma importancia que las instancias reguladoras, en coordinación con la Secretaría de Salud, implementen un etiquetado frontal rápido de leer y de fácil comprensión con criterios nutrimentales que garanticen el cumplimiento de lo expuesto en los documentos oficiales, así como la estandarización del porcentaje de consumo de azúcar al recomendado por la OMS o a una menor cantidad dada la alerta epidemiológica por diabetes que experimenta el país.

This article is largely a description of the earnings, income, and wealth distributions in the United States in 2013 as measured by the Survey of Consumer Finances (SCF). We describe facts that lie at the joint distribution of the three variables. We look at inequality in relation to age, education, employer status, and marital status. We discuss the evolution of our results over the past 25 years (1989 - 2013), emphasizing the role played by the Great Recession. We pay special attention to the degree of income and wealth concentration at the top and discuss what the use of the SCF data can contribute to the ongoing debate on this topic. Finally, we look at which income sources and asset classes contribute most to income and wealth concentration.

Calibration and modern (Bayesian) estimation methods for a neoclassical stochastic growth model are applied to make the case that the identification of key parameters, rather than quantitative methodologies per se, is responsible for empirical findings. For concreteness, the model is used to measure the contributions of technology shocks to the business cycle fluctuations of hours worked and output. Along the way, new insights are provided in the parameter identification associated with likelihood-based estimation, the sensitivity of likelihood-based estimation to the choice of structural shocks is assessed, and Bayesian model averaging is used to aggregate findings obtained from different DSGE model specifications.

A productivity innovation reduces labor share at impact, making it countercyclical; it subsequently produces a long-lasting increase that peaks five years later at a level larger in absolute terms than the initial drop, before slowly returning to average, i.e., labor share overshoots . We estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting. We pose this process in an otherwise standard real business cycle economy, and we find that the contribution of productivity innovations to the variance of hours is 1% of that in the standard RBC model.

consequently, have different redistributional properties which is what we explore in this paper. For Canada, which has a positive net asset position with respect to the rest of the world in Canadian dollar-denominated claims, we show that the magnitude of the effects of an unexpected price level increase under IT is larger than under PT. Households’ wealth loss from a price level increase is matched by the gains of the government and foreigners. Even though this redistribution is zerosum, we observe positive effects on GDP due to the wealth loss, the lower value of the debt and its associated fiscal adjustment, and the non-linear effects on work effort of the redistribution of wealth across households. Although the effects on GDP are positive, the direction of the change in the weighted welfare of households depends on the fiscal policy.

Between 1970 and 1990, the share of elderly widows living alone grew by 23.2% in the United States, whereas those living with their children decreased by a similar amount. We pose a variety of models for determining the living arrangements in which living together increases consumption because of economies of scale and may also provide utility directly. We estimate these models using the 1970 data and obtain an excellent fit. The estimated models predict that changes in the incomes of both the widow and her offspring generate three-quarters of the increase in the number of widows living alone.

Global financial imbalances can result from financial integration when countries differ in financial markets development. Countries with more advanced financial markets accumulate foreign liabilities in a gradual, long‐lasting process. Differences in financial development also affect the composition of foreign portfolios: countries with negative net foreign asset positions maintain positive net holdings of nondiversifiable equity and foreign direct investment. Three observations motivate our analysis: (1) financial development varies widely even among industrial countries, with the United States on top; (2) the secular decline in the U.S. net foreign asset position started in the early 1980s, together with a gradual process of international financial integration; (3) the portfolio composition of U.S. net foreign assets features increased holdings of risky assets and a large increase in debt.

In this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure. We characterize and solve for Markov-perfect equilibria of the dynamic game between successive governments. The characterization consists of an inter-temporal first-order condition (a "generalized Euler equation") for the government, and we use it both to gain insight into the nature of the equilibrium and as a basis for computations. For a calibrated economy, we find that when the only tax base available to the government is capital income—an inelastic source of funds at any point in time—the government still refrains from taxing at confiscatory rates. We also find that when the only tax base is labour income the Markov equilibrium features less public expenditure and lower tax rates than the Ramsey equilibrium. Copyright 2008, Wiley-Blackwell.

We build an aggregate model with difierent size houses and liquid assets. Typical households are born, are subject to idiosyncratic earnings risk and save for both life cycle reasons and housing reasons. Typically, a subset of these households, after accumulating some assets, put a down payment and buy a small, starter’s, house or ∞at. As time passes, some households upgrade to a larger and nicer house. Households with houses may also eventually downgrade to a ∞at or even to no house and ∞at owners may sell. Our speciflcation attempts to replicate some important features of modern aggregate economies: The distribution of earnings and of housing and non-housing wealth as well as some macroeconomic aggregates, including features of the mortgage issuing sector.

In this paper we ask whether an aspect of social security, namely its role as a provider of insurance against uncertain life spans, is welfare enhancing. To this end we use an OLG model where agents have a bequest motive and differ in sex and marital status and where families are formed and destroyed and their characteristics evolve (exogenously) according to U.S. demographic patterns of marriage, divorce, fertility and mortality. We compare the implications of social security under a variety of market structures that differ in the extent to which life insurance and annuities are available. We find that social security is a bad idea. In economies where the private sector provides annuities and life insurance, it is a bad idea for the standard reason that it distorts the intertemporal margin by lowering the capital stock. In the absence of such securities social security is still a very bad idea, only marginally less so compared with economies with annuities and life insurance. We also explore these issues in a world where people live longer and we find no differences in our answers. As a by-product of our analysis we find that the existence of life insurance opportunities for people is important in welfare terms while that of annuities is not.

A necessary feature for equilibrium is that beliefs about the behavior of other agents are rational and indi viduals maximize. We argue that in stationary OLG environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation. We conclude that the existing equilibrium concepts in the literature do not satisfy this condition. We then propose an alternative equilibrium concept, organizational equilibrium, that satisfies this condition. We show that equilibrium exists, it is unique, and it improves over autarky without achieving optimality. Moreover, the equilibrium can be readily found by solving a maximization program. *Rios-Rull thanks the National Science Foundation for Grant SBR-9309514 and the University of Pennsylvania Re search Foundation for their support. Prescott thanks the National Science Foundation for grant SBR-9996201. We thank Julio Davila, Igor Livshits, Larry Jones, Dan Silverman, and attendants at seminars in the Penn macro lunch group, Federal Reserve Bank of Minneapolis, Cornell-Penn State University Macro-Theory Conference, the Univer sity of Rochester, UCLA, and the 1999 Midwest Theory Meetings for comments. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

This article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period’s capital income tax rate. We find that the results contrast markedly with those under full commitment. First, capital income tax rates are very high (65% on average versus close to zero on average under full commitment). Second, labor income taxes are rather low on average (about 12% versus a value of around 31% under full commitment). Finally, labor income taxes are quite volatile, whereas under full commitment their standard deviation is essentially zero.

We study the role of habit formation in shaping the amount of precautionary savings and the wealth distribution in heterogeneous agents model economies with idiosyncratic uncertainty. We adjust preferences to equate the Intertemporal Elasticity of Substitution in all model economies. We find that habit formation brings a hefty increase in precautionary savings and very mild reductions in the coefficient of variation and in the Gini index of wealth. These findings hold for both persistent and non-persistent habits, with the effects of the former being much larger.

In this paper we study the implications of taxing overtime work in order to reduce the workweek. To this purpose we study the roles played by team work, commuting costs and idiosyncratic output risk in determining the choice of the workweek. In order to obtain reliable estimates of the consequences of our policy experiment, we calibrate our model economy to the substitutability between overtime and employment using business cycle information. We find that a tax-rate of 12% of overtime wages implements the desired reduction of the workweek from 40 to 35 hours (12.5%). We also find that this tax change increases employment by 7% and reduces output and productivity by 10.2% and 4.2%, respectively. We also study a model economy with cross-sectional variations in the workweek that arise from plant-specific output risk and we find that in this model economy the tax-rates needed to achieve the same workweek reduction are significantly larger. Finally, we find that taxing overtime dampens business cycle fluctuations and that its welfare costs seem to be very large

Political and economic transitions of non-market economies often go hand in hand. We propose an economic theory of this transition process, which highlights how the success of such a transition depends upon the policies chosen in the new democratic environment. In this paper, economic success is characterized by the continual adoption of new technology (and economic growth), which requires costly human capital investment. The political choice is whether to allow the adoption of new technology. As a non-market economy begins its transition, agents with human capital specific to a particular technology find it in their interest to vote against continued innovation. As such, the transition to a market economy can be choked off. Our theory has the following features: (i) an economic transition is associated with a substantial drop in output; (ii) it is in the interest of large groups in the population to resist laissez–faire, as factor payments equal marginal products in the post–reform economy; (iii) although the joint move to democracy and a market economy does make people better off, it is insufficient for the transition to be successful, as the number of agents with a vested interest against continued innovation grows; and (iv) a temporary\/ restriction on voting rights which ensures a laissez-faire regime is sufficient to produce long-run\/ prosperity. This restriction may not be only one capable of overcoming the anti–innovation interests. Other mechanisms such as supermajority rules on policy changes may also guarantee laissez–faire.