Research
Working Papers
Effective Marginal Tax Rates of Pension Systems
This paper aims to answer the question of how pension systems impact labour supply in a framework where agents face uncertainty about their future incomes. I demonstrate that the effective marginal tax rate, which takes into account both payroll taxes and future benefits, can be derived directly from the first order conditions of an optimizing household, and decompose it into five intuitive components. Using a lifecylce model calibrated to the US economy, I then calculate that the effective marginal tax rate of 6% lies significantly below the statutory rate of 11%. Contrary to previous work, I find that this rate does not differ significantly by income. However, this homogeneity hides significant differences in the composition of the effective tax rates, with borrowing constraints driving the tax rate for low income households, while high income households are primarily impacted by the redistribution inherent in the US pension system. Finally, I show that it would be possible to reduce this rate by an additional $2\%$ points by replacing the current US pension system with a linear pension that pays the same average replacement rate.
Lifetime Taxation in a Heterogeneous Agent Framework
Latest Version (coming soon)
In this paper, I revisit the idea of lifetime income taxation first considered by Vickrey in the 1950s in a modern theoretical framework. I demonstrate how the effective marginal tax rates can be derived in such a framework and how they evolve over the lifecycle, as agents receive additional information about their expected lifetime income. I show that the marginal tax rates under lifetime income taxation can be decomposed into a term driven by current expectations over lifetime income, a term driven by liquidity constraints, and a term driven by the insurance provided through such a nonlinear lifetime income tax. Finally, I run a policy experiment, implementing Vickrey's original proposal in an heterogenous agent model calibrated to the US economy.
Bank Funding Structure and Risk Taking (with Alessandro Ferrari, Carmen Garcia Galindo, Matic Petricek)
Ademu Working Paper | Latest Version | Slides
In this paper we use a novel approach to address issues of endogeneity in order to obtain a causal effect of leverage on risk taking by banks. Using data on local bank office deposits and local unemployment, we construct an instrument to use in a regression of leverage on a measure of risk taking constructed from new issuance of loans. The results confirm that due to limited liability banks increase their risk taking after an exogenous increase in leverage.