Title: The Welfare and Distributional Effects of Fiscal Volatility: A Quantitative Evaluation
Speaker: Jinhui Bai, Associate Professor, Washington State University
Host: Zhao Rong, Associate Professor, RIEM
Time: 14:00-15:30, March 24, Friday
Venue: H501, Liulin Campus
Abstract: This study explores the welfare and distributional effects of fiscal uncertainty using a neoclassical stochastic growth model with incomplete markets. In our model, households face uninsurable idiosyncratic risks in their labor income and discount factor processes, and we allow aggregate uncertainty to arise from both productivity and government purchases shocks. We calibrate our model to key features of the U.S. economy, before eliminating government purchases shocks. We then evaluate the distributional consequences of the elimination of fiscal uncertainty and find that, in our baseline case, welfare gains increase with private wealth holdings.