Publications

Working Papers

Working Papers / Work in Progress

  • Progressive Taxation and Educational Attainment: An Intergenerational Perspective” (job market paper)

NEW draft coming soon!

Abstract: Using a quantitative overlapping generations model with intergenerational links, I explore aggregate, welfare and distributional implications of reforming the degree of progressivity of the current US tax and transfer system. Intergenerational linkages take place via human capital formation during childhood and wealth transfers. An explicit modeling of endogenous parental human capital investment decisions allows me to analyze the effect of progressive taxation on the whole human capital accumulation process during childhood and adolescence (child human capital effect). Using a simple static model I show that the sign of this effect is theoretically ambiguous. Based on the quantitative model I find that increasing the progressivity of marginal tax rates distorts the aggregate human capital accumulation in the economy more than increasing the progressivity of average tax rates (i.e. public transfer expansions) when financed via labor income tax adjustments. Additionally, if an increase in the progressivity of average tax rates is financed via increasing the consumption tax rate the overall effect on human capital accumulation is positive which is crucial for the sign of the average welfare effect.

  • Endogenous Grid Method and Hybrid Solution Methods for Multidimensional Problems with Non-Convexities and Constraints

draft available upon request

Abstract:

Discrete-continuous problems with multiple state and control variables are hard to solve numerically. This paper makes several contributions. First, I provide a slightly modified version of the one-dimensional discrete-continuous endogenous grid method (DC-EGM) suggested in Iskhakov et al. (2017). Second, I extend this solution method to multidimensional settings with the resulting algorithm being very close to the one developed in Druedahl and Jørgensen (2017). I provide a Fortran implementation of both one-dimensional and multidimensional DC-EGM. Third, for problems when the endogenous grid method is not applicable hybrid solution methods methods that combine the endogenous gird method along (at least) one dimension with other solution methods along other dimensions turn out to be useful. Drawing on the idea of utilizing the nesting structure that many economic problems have – developed in Druedahl (2018) – I propose a solution method that is applicable for non-convex problems with multidimensional state space and multiple control variables. The paper focuses on lifecycle applications with endogenous human capital accumulation and intergenerational linkages. Additionally, I show that simple shared memory parallelization can always be used in such applications to further speed up the solution algorithm.

  • Assortative Mating, Inequality and Social Mobility: The Education Channel” (joint with Nicola Fuchs-Schündeln, Zhao Jin and Alexander Ludwig)

draft available upon request

Abstract: This paper develops a quantitative life-cycle model with heterogeneous households to analyze the consequences of an increase in educational assortative matching in the US over the time period 1960-2015 for inequality and intergenerational persistence. We model intergenerational linkages through time and monetary investments by parents into their children’s human capital as well as through wealth transfers across generations. Exogenously modeled marital matching captures the changes in educational composition of parental households observed in recent decades, which mechanically changes income and wealth distributions.
In our incomplete markets environment it additionally has an important behavioral response effect by facilitating investments into their children’s education for better off parents. Consequentially, human capital inequality among children, cross-sectional inequality and intergenerational persistence will increase. Our main objective is to quantify the relative importance of these educational composition and behavioral response effects on current and future trends in inequality and inter-generational persistence.