Research
Working Papers
Quantifying the Effects of Basic Income Programs in the Presence of Automation
The trend towards increasing automation and robotization is a challenge for the labor market, especially for the demand for low skilled labor. Concepts of a Universal Basic Income (UBI) are often brought up as potential reforms to current welfare systems which could provide additional insurance against this trend. I develop a quantitative theory of the labor market where firms endogenously decide on their investment in robots, while workers can insure themselves against the risk of automation induced job-loss by obtaining a college degree. This framework allows for an analysis of the interaction between unconditional transfers and automation and reveals a negative relationship between the generosity of the basic income and the investment in robots. UBI lowers the effective marginal tax rates for unemployed and reduces the incentives for obtaining a college degree. Both effects lead to an increase in participation and search effort in the automation sector and investment in robots is discouraged while employment increases. Concerning worker welfare, my framework highlights a generational conflict: When comparing stationary equilibria, workers would always prefer being born into an economy without a basic income. However, older cohorts who are already alive during the introduction of the basic income can expect welfare gains during the transition to the new equilibrium.
Other Work
Financial contracts are complicated and consumers often do not grasp them in their entirety. This may lead to financial mistakes. We develop a quantitative theory of unsecured credit and equilibrium default in a market with sophisticated and naïve borrowers who sometimes misunderstand their contracts and make financial mistakes. Naïves are more prone to mistakes without internalizing this fact. When signing debt contracts, we allow agents to trade off interest rates for penalty fees. These fees make financial mistakes costly. Naïves choose inefficiently high penalty fees and cross-subsidize interest rates for sophisticates. We use this framework to analyze two previously unexplored features of the CARD act: clearer language requirements and a limit on penalty fees in financial contracts. Clearer contract terms lead to fewer financial mistakes by everyone, while limiting fees constrains mostly naïve borrowers. Both policies reduce financial mistakes and increase the welfare of naïve borrowers. The effects on sophisticates differ: clearer language and fewer mistakes benefit sophisticates, too. However, limiting fees reduces the cross-subsidization sophisticates receive in equilibrium and consequently makes them worse off.
The Distributional Effects of Tax Evasion
This paper quantifies and discusses the distributional effects of tax evasion. I set up a general equilibrium model with heterogeneous households who can invest in their own business and pay capital gains taxes on realized gains. However, these capital taxes can be evaded by under-reporting the real tax base which bears the risk of being detected and having to pay a punishment fee. The model parameters are first calibrated to Scandinavia to exploit the rich estimates on tax evasion for Norway, Sweden and Denmark and is then taken to the US. The benchmark economy exhibits high wealth inequality as reported for the US and leads to a realistic evasion behavior. A counterfactual analysis then shows that if individuals can try to evade some of their tax payments, wealth inequality is higher under a tax regime with positive capital gains taxes. Comparing welfare, however, I find that the socially optimal tax rate is still strictly positive.
