José-Víctor Ríos-Rull

Accounting for the U.S. Earnings and Wealth Inequality

We show that a theory of earnings and wealth inequality, based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units, accounts for the U.S. earnings and wealth inequality almost exactly.

Vested Interests in a Positive Theory of Stagnation and Growth

Method and apparatus for providing improved combustion in an internal combustion engine by spark-ignition of fuel that is directly injected into cylinders to present a stratified fuel-air mixture at time of ignition. Reduced mixing of the fuel and air prior to ignition and thus greater stratification permits improved control of the combustion process to increase power and reduce pollutant emissions.

Life-Cycle Economies and Aggregate Fluctuations

Do the implications for business cycle issues change when we switch from studying infinitely-lived, representative-agent models to more sophisticated demographic structures with finitely lived agents? This article addresses that question by using a large, overlapping-generations model that is calibrated to U.S. demographic properties, microeconomic evidence, and National Income and Product Accounts. The finding is that the answers obtained are basically the same for the two kinds of models. The article also explores the relative volatility of hours across age groups, an issue that cannot be addressed by using the infinitely-lived, representative-agent abstraction.

Politico-economic equilibrium and economic growth

Abstract We propose a notion of dynamic politico-economic equilibrium which builds on two key assumptions: policies are determined sequentially, and agents are fully rational in their roles as both consumers and voters. We examine a simple model of endogenous growth and infinitely-lived agents, where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings. We relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth. We show that our equilibria are time-consistent and we argue that the choice of equilibrium concept might have important quantitative implications.

Consumption smoothing in island economies : can public insurance reduce welfare?

Abstract In this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment. We show that this type of insurance can improve the wellbeing of private situations, but it can also deteriorate it. We also describe how different characteristics of the environment affect the role of public insurance. Using data on the Mexican PROGRESA program, we document the impact that some government programs have in crowding out private transfers.

Precautionary savings and wealth distribution under habit formation preferences

Abstract 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.

Exploring the income distribution business cycle dynamics

Abstract We document the business cycle behavior of the US income distribution and explore the extent to which unemployment spells and cyclically-moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model. We conclude (i) that partitioning the population into five types subject to type-specific employment processes seems to be enough to account for most aspects of the US income distribution business cycle dynamics, (ii) that the role played by cyclically-moving factor shares is small, and (iii) that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for.

Are consumption taxes really better than income taxes

Abstract We use political-equilibrium theory and the neoclassical growth model to compare consumption and income tax systems. If government outlays are used for redistribution through transfers, then steady-state equilibria in societies that use income taxes are not necessarily worse in welfare terms, and may even be better. Income taxes are attractive precisely because they are more distortionary, since this implies low equilibrium transfer levels. We also find that switching tax systems typically does not benefit the median voter; moreover, a change from income to consumption taxes may make everybody worse off.

Population Changes and Capital Accumulation: The Aging of the Baby Boom

In this paper I explore the quantitative implications for savings of population aging. In doing so, I pay particular attention to some features that have been partially over-looked in the literature. These features include the details of the population aging process, the initial conditions with respect to assets holdings, and the relation between age and household size. In order to do so, I develop recursive methods capable of dealing with overlapping generations environments where the population is stochastic. The main findings are: i) If population patterns revert to the averages of the last 50 years, the reduction in aggregate savings due to changes in the age structure of the population is small. ii) If, however, the demographic process is such that fertility patterns remain at their current low levels, then the effects of the aging of the baby boom are very large. iii) Initial conditions matter: both the choice for initial assets and the choice for the mechanism through which current fertility reverts to its long run average have implications for the economic allocations. And iv) The contribution of general equilibrium effects is to exacerbate the reduction of savings since population aging tends to make labor relatively scarce, and, therefore, to reduce rates of return of capital, which in turn reduces savings even further.

On the quantitative importance of market completeness

Abstract This paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk. The findings are that the equilibrium behavior of aggregate variables is very similar across all market structures. There are only minor differences: the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies, due partly to the higher volatility of consumption of older people. It was also found that the risk premia in complete markets economies is basically zero. Therefore, we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk.