We use panel data from the Italian Survey of Household Income and Wealth from 1991 to 2016 to document empirically what components of the household budget constraint change in response to shocks to household labor income, both over shorter and over longer horizons. We show that shocks to labor income are associated with negligible changes in transfers and non-labor income components, modest changes in consumption expenditures, and large changes in wealth. We then split the sample in households which do not own business or real estate wealth, and households who do. For the first group, we find that consumption responses are more substantial (and increasing with the horizon of the income shock) and wealth responses are much smaller. We show that, for this group, a version of the standard PIH framework that allows for partial insurance against even permanent income shocks can explain well the consumption and wealth responses, both at short and long horizons. For the second group the standard framework cannot explain the large changes in wealth associated with income shocks. We conclude that models which include shocks to the value of household wealth are necessary to fully evaluate the sources and the consequences of household resource risk.

How different should income taxation be across singles and couples? I answer this question using a general equilibrium overlapping generations model that incorporates single and married households, intensive and extensive margins of labor supply, human capital accumulation, and uninsurable idiosyncratic labor productivity risk. The degree of tax progressivity is allowed to vary with marital status. I parameterize the model to match the U.S. economy and find that couples should be taxed less progressively than singles. Relative to the actual U.S. tax system, the optimal reform reduces progressivity for couples and increases it for singles. The key determinants of optimal policy for couples relative to singles include the detrimental effects of joint taxation and progressivity on labor supply and human capital accumulation of married secondary earners, the degree of assortative mating, and within-household insurance through responses of spousal labor supply. I conclude that explicitly modeling couples and accounting for the extensive margin of labor supply and human capital accumulation is qualitatively and quantitatively important for the optimal policy design.

This paper develops a framework for assessing the welfare effects of labor income tax changes on married couples. I build a static model of couples' labor supply that features both intensive and extensive margins and derive a tractable expression that delivers a transparent understanding of how labor supply responses, policy parameters, and income distribution affect the reform-induced welfare gains. Using this formula, I conduct a comparative welfare analysis of four tax reforms implemented in the United States over the last four decades, namely the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Tax Cuts and Jobs Act of 2017. I find that these reforms created welfare gains ranging from -0.16% to 0.62% of aggregate labor income. A sizable part of the gains is generated by the labor force participation responses of women. Despite three reforms resulting in aggregate welfare gains, I show that each reform created winners and losers. Furthermore, I uncover two patterns in the relationship between welfare gains and couples' labor income. In particular, the reforms of 1986 and 2017 display a monotonically increasing relationship, while the other two reforms demonstrate a U-shaped pattern. Finally, I characterize the bias in welfare gains resulting from the assumption about a linear tax function. I consider a reform that changes tax progressivity and show that the linearization bias is given by the ratio between the tax progressivity parameter and the inverse elasticity of taxable income. Quantitatively, it means that linearization overestimates the welfare effects of the U.S. tax reforms by 3.6-18.1%.

How do the patterns in matching of spouses and the nature of work jointly shape the distribution of COVID-19 health risks? To address this question, I study the association between the incidence of COVID-19 and the degree of spousal sorting into occupations that differ by contact intensity at the workplace. The mechanism, that I explore, implies that the higher degree of positive spousal sorting mitigates intra-household contagion and this translates into a smaller number of individuals exposed to COVID-19 risk. Using the U.S. data at the state level, I argue that spousal sorting is an important factor for understanding the disparities in the prevalence of COVID-19 during the early stages of the pandemic. First, I document that it creates about two-thirds of the U.S. dual-earner couples that are exposed to higher COVID-19 health risk due to within-household transmission. Moreover, I uncover substantial heterogeneity in the degree of spousal sorting by state. Next, for the first week of April 2020, I estimate that one standard deviation higher measure of spousal sorting is associated with a 30% smaller number of cases per 100000 inhabitants and a 39.3% smaller number of deaths per 100000 inhabitants. Furthermore, I find substantial temporal heterogeneity as the coefficients decline in magnitude over time. My results speak to the importance of policies that allow mitigating intra-household contagion.

How to design an optimal contract under the long-term principal-agent interactions when the agent's type is described by more than one characteristic? I study a problem where a monopolist repeatedly sells two non-durable goods to a buyer. A buyer's type, that captures the preferences over the goods, is two-dimensional private information that stochastically evolves over time according to a Markov process. I characterize the optimal contract and describe how it is shaped by the history of the buyer's reports, cross-sectional distribution of the buyer's characteristics, and their persistence. In particular, I show that there exists a non-negative threshold such that if the covariance between the buyer's subtypes is above it, then the optimal quantity of a good does not depend on the report about the marginal valuation of another good, and if the covariance is between zero and this threshold, then the optimal quantity of a good depends on the report about the marginal valuation of another good. The behavior of the optimal contract over time is shaped by the persistence of the buyer's type. Furthermore, I apply this framework to the environment with income taxation. I find that the optimal tax schedule crucially depends on the interaction between the cross-sectional distribution of privately observed types and the government's taste for redistribution. In addition, I obtain a generalization of the ABC-formula for the optimal labor supply distortions under multidimensional private information.

Is the behavior of people consistent with the predictions of the Nash equilibrium and, in particular, the minimax theorem? This paper explores how close is the behavior of not-so-skilled and not-so-experienced professional players to the minimax predictions in a natural setting. In particular, I test the hypotheses that, first, success rates are the same across strategies for all the players, and, second, strategic choices of both opponents do not demonstrate inertia and are serially independent. To address the question, I construct a novel dataset on the universe of penalty kicks performed by professional players representing a soccer league of moderate quality. I show that the behavior of players is broadly consistent with the predictions of the minimax theorem despite the lower quality of the league.

Private ownership confers numerous benefits, including stronger performance incentives, better use of privately owned assets, and improved access to finance. We argue that privately owned land could be both an asset and a liability, and overall net benefits of land ownership are contingent on the quality of surrounding institutions. We present a simple model and empirical evidence based on the Business Environment and Enterprise Performance Survey (BEEPS) in Russia, which clearly demonstrates such conditionality in the case of land ownership by Russian industrial firms. Consistently with earlier literature, land ownership facilitates firms’ access to finance (the “de Soto effect”), but at the same time entails additional risks and obstacles to doing business. When the quality of property rights protection and other key institutions is poor, land ownership could have an adverse effect on firms’ performance.

What are the implications of a decline in the minimum wage for earnings inequality in an economy with a sizable informal sector? We address this question by using rich administrative matched employer-employee data and survey data from Mexico, a country where almost half of the workers are informally employed, combined with an equilibrium search model of the labor market. Between 1988 and 1996, the Mexican economy witnessed two opposite trends: a 61 log point increase in P90-P10 earnings inequality in the formal sector was accompanied by a 48 log point decline in the real minimum wage. On the empirical side, we show that the minimum wage spillover effects reach up to the 70th percentile of the earnings distribution. Next, using the AKM decomposition, we find that the variance of worker fixed effects accounts for about 60% of the total variance of log earnings. Finally, using the model that features both formal and informal sectors, we evaluate the effects of the minimum wage decline on the earnings distribution in the formal sector, employment, and output in Mexico.

Epidemiological models of COVID-19 transmission assume that recovered individuals have a fully protected immunity. To date, there is no definite answer about whether people who recover from COVID-19 can be reinfected with the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). In the absence of a clear answer about the risk of reinfection, it is instructive to consider the possible scenarios. To study the epidemiological dynamics with the possibility of reinfection, I use a Susceptible-Exposed-Infectious-Resistant-Susceptible model with the time-varying transmission rate. I consider three different ways of modeling reinfection. The crucial feature of this study is that I explore both the difference between the reinfection and no-reinfection scenarios and how the mitigation measures affect this difference. The principal results are the following. First, the dynamics of the reinfection and no-reinfection scenarios are indistinguishable before the infection peak. Second, the mitigation measures delay not only the infection peak, but also the moment when the difference between the reinfection and no-reinfection scenarios becomes prominent. These results are robust to various modeling assumptions.

The paper explores various measures of institutional quality in Russian regions, and compares those measures to each other. Such analysis leads to the conclusion that Russian regional institutions are essentially multidimensional, and therefore comparisons of Russian regions in terms of their overall institutional quality could be problematic. New institutional indices are derived from Russian enterprise surveys held under the BEEPS project of the European Bank of Reconstruction and Development. Such indices yield a typology of Russian regions in terms of efficacy of regional administrations’ control over economy and bureaucracy in their regions. Dynamics of regional institutional indices is investigated against the backdrop of Russia-wide institutional trends.