Essays on Macroeconomics with Heterogeneity and Public Finance

André Victor Doherty Luduvice, University of Pennsylvania


This thesis focuses on how the design of public insurance policies entails distributional consequences that impact macroeconomic aggregates, inequality, and welfare. The first chapter assesses the general equilibrium effects of substituting the current U.S. income security system with a Universal Basic Income (UBI) policy. I develop an overlapping generations model with idiosyncratic income risk that incorporates intensive and extensive margins of labor supply, on-the-job learning, and child-bearing costs. I calibrate the model to the U.S. and conduct counterfactual analyses that implement reforms towards a UBI. I find that an expenditure-neutral reform has moderate impacts on agents' labor supply response but induces aggregate capital and output to grow due to larger precautionary savings. A UBI of $1,000 monthly requires a substantial increase in the tax rate of consumption used to clear the government budget and lead to an overall decrease in the aggregates. In both cases, the economy has more disposable income but less consumption at the bottom of their distributions. The UBI economy constitutes a welfare loss at the transition if expenditure-neutral and results in a gain in the second scenario. Despite relative losses, a majority of newborn households support both UBI reforms. The second chapter develops a heterogeneous agents model with history-dependent U.I. benefits built on stylized facts of the U.S. economy to quantitatively obtain an optimal U.I. program design. We first conduct an empirical analysis using the discontinuity of U.I. rules at state borders and find that a tenure requirement induces a longer employment spell. The monetary requirement decreases the number of employers and has a stronger effect on U.I. applications. The model can recover the sign of the relation between the requirements and the employment outcomes. When the tenure requirement is long, workers tend to accept more low paying jobs to become eligible sooner to U.I. and protect themselves from risk. The monetary requirement has the opposite effect. Due to its impact on moral hazard, the monetary requirement can generate higher levels of welfare than an increase in the length of the tenure requirement. The highest level of welfare is achieved by the optimization of both requirements.

Subject Area


Recommended Citation

Luduvice, André Victor Doherty, "Essays on Macroeconomics with Heterogeneity and Public Finance" (2020). Dissertations available from ProQuest. AAI28030959.