Working Papers

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• This study develops a stochastic growth model to investigate how tax morale, a nonfinancial cost of evasion, fundamentally shapes the growth-inequality nexus. The analysis reveals a stark policy challenge determined by the prevailing level of morale. High tax morale sustains a desirable no-evasion equilibrium, allowing the economy to achieve its maximum potential growth rate without exacerbating inequality. Conversely, low morale traps the economy in an inefficient evasion equilibrium. In this state, the stochastic nature of evasion not only hinders growth but also endogenously creates a stationary double Pareto wealth distribution, leading to persistently high inequality. Crucially, this framework generates a non-monotonic relationship between growth and inequality-an "inequality overhang"-driven by the endogenous response of evasion to the wealth tax rate. 

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• We examine the implications of virus mutation for optimal lockdown policy in an epimacro model. We consider three ways of modelling virus mutation—one deterministic setup and two stochastic setups featuring a two-state and three-state Markov process. We find that the effects of virus mutation are asymmetric. In particular, a future reduction in the transmission rate increases lockdown intensity by more than a future rise in the transmission rate lowers it. As a corollary to this asymmetry, an increase in uncertainty about future mutation is non-neutral and reduces lockdown intensity under the optimal policy.

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• Although the steady state equilibrium is represented by a single point in the capital-consumption plane in the standard Ramsey model, it is by a straight line in a Ramsey model with heterogeneous individuals. Taking advantage of this fact,  this paper applies the backward induction method to analyze the transitional dynamics of the Ramsey model with heterogeneous individuals, and examines the role of heterogeneity in intertemporal elasticity of substitution  (IES). When no heterogeneity exists in IES across individuals, then the wealth Gini declines as capital accumulates, while the wealth gap expands. In contrast, with heterogeneity, various dynamics of wealth distribution can emerge, including a U-shaped relationship between income and inequality. It is also shown that an inverted U-shaped relationship,  i.e.,  the  Kuznets curve can be explained by Stone-Geary preferences, which allow IES to change with wealth.