RESEARCH PAPERS

Xavier Mateos-Planas

 

 

 

PUBLISHED PAPERS

 

 

Schooling and Distortions in a Vintage Capital Model

Review of Economic Dynamics, 4, 127-158, 2001

 

This paper integrates the analysis of choices on education and on technology adoption to study international economic disparities. Two candidate explanations are considered: differences in distortions that affect the cost of technology adoption and differences in the effectiveness of schools. The implications of these two factors for differences in output per capita, educational attainment, and the age of technologies across countries are assessed in a vintage capital model with technology-specific learning-by-doing. Predictions are obtained for a parameterized economy that matches U.S. aggregate observations and evidence on learning. Differences in investment distortions produce plausible correlations only if the major role of education is to improve the ability to learn technologies. On the other hand, differences in school effectiveness produce plausible results only if the role of education is to provide a productive ability that is independent of learning (view PDF)

 

 

The European Demographic Transition: a Neoclassical Dynastic  Approach

Review of Economic Dynamics, 5, 646-680, 2002

 

This paper investigates the factors that have shaped the demographic transition in a number of European countries (Sweden, England, and France) since the mid 18th century. The analytical framework is a version of the neoclassical growth model with dynastic preferences calibrated to match the Swedish experience. This model is used to study the contribution of various factors to the explanation of the observed demographic patterns, both over time and across countries. The factors considered are mortality changes, technological progress, and the evolution of the cost of children. The analysis suggests that the contribution of observed mortality rates is limited. A substantial part of the demographic-transition facts must be attributed to variation in the cost of children and/or technological change, both over time and across countries. (view PDF)

 

 

Longer Lives, Fertility, and Accumulation

Economics Letters, 80, 2, 175-180, 2003

 

In the neoclassical growth model with dynastic households, a reduction of mortality may lead to a steady-state with higher income and lower fertility and population growth rates. This requires that reductions in mortality have a sufficiently larger relative impact at younger ages. (view PDF)

 

 

Technology Adoption with Finite Horizons

Journal of Economic Dynamics and Control, 28, 2129-2154, 2004

 

The purpose of this paper is to study the relation between the age of an agent and her decisions about adopting new technologies. To this end I analyze the optimal sequence of technology upgrades by an agent who lives for a finite period of time. Other characteristics of the environment are the existence of technology-specific learning-by-doing, technology growth, and adoption costs. A finite planning horizon implies that the technology adoption problem is non-stationary and the frequency of adoptions changes over time. This paper provides results for the computation of the optimal plan and explores numerically the life-cycle pattern of technology switches. Adoptions may become more frequent as the agent becomes older. However the sign of the association between age and the adoption of new technologies is sensitive to variation in parameters. A tenuous pattern thus emerges which is not at odds with the findings of empirical studies. (view PDF)

 

 

Creative Destruction and Policy in a Capital Model of Endogenous Growth

Topics in Macroeconomics, 4, article 9, 2004

 

This paper extends a model of endogenous growth through the introduction of a component of knowledge that makes new technologies more productive than older vintages. The paper characterizes equilibrium transitional and long-run properties for the economy. The phenomenon of creative destruction, or obsolescence, of technologies underlies the growth process. In this set up, the growth effects of various policies are analyzed. These policies include vintage-specific subsidies to firms that produce final output, a general lump-sum tax on final-output firms, and openness to trade with a less developed country. The results show the existence of growth effects that are absent in previous literature.(view PDF)

 

 

Skill bias and unemployment frictions in the US labor market 1970-1990 (with X. Cuadras-Morato) 

International Economic Review, 47, 129-160, 2006

 

This paper studies simultaneous changes in four labor market variables: the unemployment rates for college and high-school graduates, the education wage premium, and the level of college participation. It develops an equilibrium search and matching model of the labor market where education is endogenously determined. Then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the U.S. can be traced to some changes in the environment. A skill-biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables. These findings rest critically on the joint determination of education decisions, wages, and unemployment. (view PDF)

 

 

Welfare Implications of Bankruptcy with Endogenous Credit Limits (with G. Seccia)

Journal of Economic Dynamics and Control, 30,  2081 –2115, 2006

 

This paper studies the aggregate consequences of changes in the prescribed penalty for personal bankruptcy and in social insurance policies when borrowing limits may respond to these changes. It uses a dynamic general equilibrium model of an exchange economy with incomplete markets. The novel feature is that the borrowing constraint and the risk of default are endogenous, and the default penalty restricts an individual's access to the markets for a fixed period of time. The effect on the stationary equilibrium of an exogenous reduction of one and two years in this exclusion period is explored quantitatively. For comparison purposes, the same experiment is carried out under the assumption made in related studies that the borrowing limit is fixed. A small welfare loss follows in either case. In contrast, in a small open economy, welfare may increase substantially but only if the borrowing constraint is endogenous. The same results hold for an exogenous change in social policy that reduces individual income variability. (view PDF)

 

 

A Quantitative Theory of Social Security Without Commitment

Journal of Public Economics, 62, 652-671, 2008.

 

This paper investigates the determination of social security within a general equilibrium, overlapping-generations model where agents live for many periods, and  replacement rates are determined sequentially through bargaining between age groups of forward looking agents. The distinctive feature is the study of Markov equilibrium policy outcomes which do not rest on any commitment mechanism. For the purpose of comparison with the approach typical of the literature, the case of commitment to policies at time zero is also studied. Versions of the model are calibrated to the US post-war economic, policy, and demographic conditions. Even in the absence of commitment, the policy preferences of tax-paying working-age voters can sustain a positive level of retirement benefits. This follows because current social security has a positive impact on future pension benefits and returns to savings at the time when the current voters will retire. On the other hand, the projected decline in the US population growth rate causes the replacement rate and the GDP share of transfers to decline, but the response under sequential non-commitment policies is  less dramatic than when policies are committed at time zero. (view PDF)

 

 

Demographics and the Politics of Capital Taxation in a Life-cycle Economy

(The American Economic Review - forthcoming)

 

This paper investigates the consequences of changes in the age composition of the population for the mix of tax rates on labour and capital income. The analysis is conducted within a quantitative general equilibrium overlapping-generations model. Tax rates are determined in a Markov equilibrium through sequential voting without commitment. A calibrated version of the model is used to study quantitatively the effects of past and projected demographic shifts in the US. The younger voting-age population in 1990 relative to 1965 can account for  the large decline in the relative capital tax rate observed between these two years; the older voting-age population expected in 2025 leads to a sharp increase in capital taxation. These results reflect that the tension between the induced changes in the decisive voter's age and in macroeconomic conditions is resolved in favour of the latter. A younger population results in a higher net private return to capital, causes voters to save more, and leads them to become less supportive of capital taxes. A simple analytical model is provided to articulate the intuition. (view PDF)

 

 

PAPERS UNDER REVIEW

 

 

 

Wage Inequality and Unemployment with Overeducation

 

A skill-biased change in technology can account at once for the changes observed in a number of important variables of the US labour market between 1970 and 1990. These include the increasing inequality in wages, both between and within education groups, and the increase in unemployment at all levels of education. In contrast, in previous literature this type of technology shock cannot cause all of these changes. The paper uses a matching model with a segmented labour market, an imperfect correlation between individual ability and education, and a fixed cost of setting up a job. The endogenous increase in overeducation is the key to understand the response of unemployment to the technology shock. (view PDF)

 

 

A model of credit limits and bankruptcy with applications to welfare and indebtedness

 

This paper presents a model of unsecured consumer debt and default where credit conditions consist of pre-approved interest rates and borrowing limits, a feature of actual credit cards. Otherwise the setting is the standard model of capital accumulation, labour supply, and idiosyncratic risk with incomplete markets. Fixed costs of banking and an interest ceiling can give rise to a situation where all loans, irrespective of their size and risk, take place against the same type of credit line, and some borrowers are credit constrained. The first part of the paper establishes conditions for this to be the case in spite of free entry competition in banking. The second part pursues the quantitative analysis of, on one hand, the macroeconomic and welfare effects of the consumer bankruptcy code, and on the other hand, the consequences of various factors for both indebtedness and bankruptcy. Restricting bankruptcy filings - be it through a stricter Chapter 7 means testing or a longer period of credit exclusion - leads to sizable welfare loses. The recently observed rising levels of debt and filing rates are best explained by a combination of lower intermediation costs and more severe non-discretionary expenditures shocks. The endogenous response of the credit limit proves to be critical for these findings. (view PDF)

 

 

PAPERS IN PROGRESS

 

 

Consumer bankruptcy with complete markets (with Giulio Seccia) (PRELIMINARY)

 

This paper studies the determinants and consequences of default in an economy with complete markets. This is in contrast with the usual focus on incomplete-market situations. It is found that default matters, even if divested of an insurance role. The notion that a fall in stigma has been a main driver of the observed rising default cannot explain the parallel extension of credit. However, the reduction in intermediation costs of a shift in the distribution of resources towards lenders can also account for rising debts. The model in this paper is simple enough to track the mechanisms through which any of these shocks affects default and the allocation of consumption. (UPDATED PAPER COMING SOON)

 

Credit lines (with Victor Rios-Rull)

 

This paper studies the patterns of credit card conditions across households in the US. To this end, we develop and solve an incomplete-markets heterogeneous-agents model of credit lines under realistic institutional features. Credit lines are long term relations between banks and households that pre-specify a credit limit and interest rate. Households can unilaterally default according to Bankruptcy code, and can switch credit lines. Banks may or may not commit to the interest rates - thus reflecting the recent shifts in the regulatory framework and the Regulation Z - but can set a new credit limit at any time. We solve and characterize the set of lines that are traded under free entry competition and the distribution of households over interest rates, credit limits and wealth. We find that this model replicates the main properties of typical lending contracts. (UPDATED PAPER COMING SOON)