NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Gonzalo Paz Pardo

University College London
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London WC1H 0AX
United Kingdom

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NBER Working Papers and Publications

February 2018Nonlinear Household Earnings Dynamics, Self-insurance, and Welfare
with Mariacristina De Nardi, Giulio Fella: w24326
Earnings dynamics are much richer than typically assumed in macro models with heterogenous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two household-post-tax earnings processes in a standard life-cycle model: the canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better fit of the evolution of the cross-sectional consumption inequality over the life cycle and of the individual-level degree of co...
January 2016The Implications of Richer Earnings Dynamics for Consumption and Wealth
with Mariacristina De Nardi, Giulio Fella: w21917
Earnings dynamics are much richer than those typically used in macro models with heterogenous agents. This paper provides multiple contributions. First, it proposes a simple non-parametric method to model rich earnings dynamics that is easy to estimate and introduce in structural models. Second, it applies our method to estimate a nonparametric earnings process using two data sets: the Panel Study of Income Dynamics and a large, synthetic, data set that matches the dynamics of the U.S. tax earnings. Third, it uses a life cycle model of consumption to compare the consumption and saving implications of our two estimated processes to those of a standard AR(1). We find that, unlike the standard AR(1) process, our estimated, richer earnings process generates an increase in consumption inequalit...
 
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