This paper investigates the importance of entrepreneurship when quantifying the aggregate and distributional effects of switching from a progressive to a proportional income tax system. I find that the distributional consequences of the tax reform in a model economy with entrepreneurs contrast...

Canada suffered a major depression from 1929 to 1939. In terms of output, it was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, the in the United States TFP had revered by 1937. We find that the...

We examine the role of generalized constant gain stochastic gradient (SGCG) learning in generating large deviations of an endogenous variable from its rational expectations value. We show analytically that these large deviations can occur with a frequency associated with a fat tailed...

This paper examines an equilibrium model of social memory -- a society's vicarious beliefs about its past. We show that incorrect social memory is a key ingredient in creating and perpetuating destructive conflicts. We analyze an infinite-horizon model in which two countries face off each period...

We study the problem of a firm that faces asymmetric information about the persistent productivity of its potential workers. In our framework, a worker's productivity is either assigned by nature at birth, or determined by an unobservable initial action of the worker that has persistent effects...

This paper models the value of managerial human capital as a function of the ability to predict profitability in the presence of risk. The model implies that the marginal productivity of prediction ability increases with increasing risk and that managers with high prediction ability will tend to...

The welfare cost of imperfect competition in the product and labor markets in the United States is quantified in a dynamic general equilibrium model. We find that the welfare cost of imperfect competition in the product market is 3.62 percent while it is 0.58 percent in the labor market, taking...

This paper addresses the classic question: what are the welfare costs of inflation. We employ a model in which the ratios of currency to deposits and currency to reserves are endogenously determined. The model distinguishes quantitatively between three sources of welfare cost of inflation, and...

Augmenting a standard Bewley model with an entrepreneurial sector and occupational heterogeneity allows us to study important channels through which fiscal policies affect aggregate variables, factor prices, wealth distribution and welfare. To disentangle the forces involved, we consider...

Recent empirical work finds that government spending shocks can cause aggregate consumption to increase. This paper builds on the framework of imperfect information in Lucas (1972) and Lorenzoni (2009) to show how government spending can stimulate consumption. Owners of firms targeted by an...