Dissertation/Thesis Abstract

Essays in Macroeconomics and International Trade
by Lyon, Spencer G., Ph.D., New York University, 2018, 150; 10936066
Abstract (Summary)

This dissertation is made up of three chapters, each of seeks to understand a different aspect of the modern, global economy and the how considering international linkages and issues has implications for micro-and-macro-economic outcomes.

Chapter 1, 'Redistributing the Gains From Trade Through Progressive Taxation' asks the questions “Should a nation's tax system become more progressive as it opens to trade? Does opening to trade change the benefits of a progressive tax system?” In this chapter, Mike Waugh and I answer these question within a standard incomplete markets model with frictional labor markets and Ricardian trade. Consistent with empirical evidence, adverse shocks to comparative advantage lead to labor income losses for import-competition-exposed workers; with incomplete markets, these workers are imperfectly insured and experience welfare losses. A progressive tax system is valuable, as it substitutes for imperfect insurance and redistributes the gains from trade. However, it also reduces the incentives for labor to reallocate away from comparatively disadvantaged locations. We find that optimal progressivity should increase with openness to trade with a ten percentage point increase in openness necessitating a five percentage point increase in marginal tax rates for those at the top of the income distribution.

Chapter 2, 'Pareto weights as wedges in two-country models', was written with Dave Backus, Axelle Ferriere, and Chase Coleman. In this chapter we study how in models with recursive preferences, endogenous variation in Pareto weights would be interpreted as wedges from the perspective of a frictionless model with additive preferences. We describe the behavior of the relative Pareto weight in a two-country world and explore its interaction with consumption and the real exchange rate.

Chapter 3, 'Demand Shocks, Customer Capital and Exporter Dynamics,' is co-authored with Spencer Lyon. Recent empirical research has documented a rich set of facts about the lifecycle dynamics of individual firms, and particularly their dynamics in export markets. Most trade models abstract from these features of the data. We develop a model that bridges this divide and is capable of studying the effects of changes in trade policies on firm dynamics, and assessing how accounting for these effects changes the aggregate effects of such policy changes. The model is based on Melitz (2003) and can generate these dynamics as a result of firms facing uncertainty about their demand which they slowly resolve through selling their goods, and a demand side friction that causes customer accumulation to be a gradual process.

Indexing (document details)
Advisor: Waugh, Michael E.
Commitee: Sargent, Thomas J., Veldkamp, Laura K., Zin, Stanley E.
School: New York University
Department: Economics
School Location: United States -- New York
Source: DAI-A 80/02(E), Dissertation Abstracts International
Subjects: Economics
Keywords: Computational methods, Dynamic programming, International trade, Labor markets, Macroeconomics, Optimal tax
Publication Number: 10936066
ISBN: 978-0-438-39499-5
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