In this paper we analyze analytically, quantitatively, and empirically a framework where labor supply has three distinct roles. First, as usual, it increases contemporaneous earnings. Second, because of incomplete asset markets, it provides some partial insurance for idiosyncratic labor...

In environments where agents face uninsurable idiosyncratic income shocks, it is well-known that progressive taxation can potentially provide extra insurance and may, hence, improve welfare. However, if taxes distort individual incentives or cannot be conditioned on all relevant individual...

We provide a characterization of the optimal UI scheme in the presence of layoff risk and hidden wealth. The optimal transfer scheme we propose is such that unemployed agents are liquidity constrained and re-employment taxes are independent of previous employment history. Past history is however...

In this paper we study the impact of moral hazard in labor contracts on the cross-sectional wage distribution, in particular, its effect on the extent of residual wage inequality. The tool of our analysis is a search model with job-to-job mobility and firm competition for workers. In our...

A financial stability fund set by a union of sovereign countries (e.g. the European Stability Mechanism), can improve countries's ability to borrow and lend, and to share risks, with respect to debt financing. Efficiency gains arise from the ability of the fund to offer long-term financial...

In the typical model of risk sharing with limited commitment (e.g. Kocherlakota, 1996) agents do not have access to any technology transferring resources intertemporally. In our model, agents have a private (non-contractible and/or non-observable) saving technology. We first show that, under...

This paper studies different income tax reforms in an infinite horizon economy with a progressive labor income tax code, incomplete markets an endogenous borrowing constraints on capital holdings. In particular, it assumes that households can break their trading arrangements by going into...

is monotone in output. We also investigate a few possibilities of relaxing these requirements.

Several frictions might prevent (or make undesirable) the full taxation of savings. Due to international capital mobility, for instance, the government may not have perfect control over agent's saving and consumption decisions. We show in this paper that a restricted ability to tax savings has...

In a model with capital accumulation, aggregate risk and competitive intermediaries, Abraham and Carceles-Poveda (2006) show that the constrained efficient allocations can be decentralized as a competitive equilibrium with endogenous borrowing limits if one also imposes an upper limit on the...