PhD Student, London School of Economics (LSE)
Abstract: Precautionary saving is a key driver of wealth inequality within models of the Bewley-Huggett-Aiyagari canon. However, models with savings rates calibrated solely to idiosyncratic income risk find it difficult to replicate the vast wealth inequality empirically observed in the United States. This paper looks at a potential source of increased precautionary savings - idiosyncratic medical expenses shocks. This paper: i. establishes an identification procedure for medical expenditure shocks across the entire life cycle, ii. finds that idiosyncratic shocks are very highly persistent, iii. establishes the extent to which these shocks contribute to wealth inequality through the effect on savings behaviour.
Abstract: Recent developments in the public finance literature suggest that the extent of tax evasion is large (Zucman 2017), and its impact on inequality equally so (Kleven 2018). The dynamic incentives of individuals to evade taxation are clear in the micro level (long lit. c.f. Sandmo 1972 etc). However, what has been less formalised are the mechanisms of the other major actor in this context – the state. This paper aims to theoretically explore the incentives of state to catch tax evaders, recovering missing income from the government budget constraint, and the subsequent impacts this has on welfare through the labour supply \& the mechanism of state capacity. Is recovering evaded taxation optimal, and if so how does this differ across heterogeneous economies? How does tax evasion affect individuals along the income distribution?
Department of Economics
London School of Economics and Political Science (LSE)