A key contention in economics is the discrepancy between micro and macro elasticities of labor supply with respect to marginal tax rates. We revisit this question, focusing on the role of dynamic returns to effort among top earners. We develop a new model of earnings responses to taxes in the...

By preemptive austerity, we mean a policy that increases taxes to deter potential rollover crises. The policy is so successful that the usual danger signal of a rollover crisis, a high yield on new bonds sold, does not show up because the policy eliminates the danger. Mechanically, high taxes...

Employment and participation rates for US prime age women rose steadily during the second half of the 20th century. In the last 30 years, however, those rates stagnated, even as employment and participation rates for women in other industrialized countries continued to rise. I discuss the role...

We investigate the impact of a set of place-based subsidies introduced in Turkey in 2012. Using firm-level balance-sheet data along with data on the domestic production network, we first assess the policy's direct and indirect impacts. We find an increase in economic activity in...

After 162 years of political unification, Italy still displays large regional economic differences. In 2019, the per capita GDP of Lombardia was 39,700 euros, but Calabria's per capita GDP was only 17,300 euros. We build a two-region, two-sector model of the Italian economy to measure the wedges...

We study equilibria in a heterogeneous-agent incomplete-market economy with nominal government debt and flexible prices. Unlike in representative agent economies, steady-state equilibria exist when the government runs persistent deficits, provided that the level of deficits is not too large. In...

Government debt can be rolled over forever without primary surpluses in some stochastic economies, including some economies that are dynamically efficient. In an overlapping-generations model with constant growth rate, g, of labor-augmenting productivity, and with shocks to the durability of...

We propose a political economy mechanism that explains the presence of fiscal regimes punctuated by crisis periods. Our model focuses on the interaction between successive deficit-biased governments subject to i.i.d. fiscal shocks. We show that the economy transitions between a fiscally...

Should central banks care about inequality? To address this question, we extend a standard model of time inconsistency in monetary policy to allow for heterogeneity. As in the standard analysis, lack of policy commitment leads to a bias towards socially excessive inflation. But the novel result...