Loukas Karabarbounis: Papers

JOB MARKET PAPER

Labor Wedges and Open Economy Puzzles.
Abstract: Recent research has emphasized the central role of the difference between the marginal product of labor and the marginal rate of substitution of leisure for market consumption (the "labor wedge") for the US business cycle. This paper proposes a theory of the labor wedge that explains some of the most prominent features of the international business cycle. In the model, the labor wedge and the international business cycle are jointly determined. The common underlying factor is a parsimonious model with home production. If the econometrician does not observe how households allocate their non-market time between leisure and homework, and if market and home activity are substitutes, then the observed labor wedge increases whenever market consumption and employment decrease. Microeconomic studies of the allocation of time restrict the theory of the labor wedge. In turn, the labor wedge disciplines the mechanism that explains major puzzles in the open economy. In an estimated two-country model, if every country's wedge looks like the observed labor wedge in first and second moments, then outputs and employments are more correlated than (market) consumptions and investments across countries, relative consumption is negatively related to the real exchange rate, and real net exports are countercyclical. The insight that explains the puzzles is that home production breaks the tight negative link between market consumption and its marginal utility. Surprisingly, the risk sharing puzzle becomes easier to explain as the degree of financial completeness increases.

Here is the Web Appendix.

OTHER RESEARCH PAPERS

Gender Based Taxation and the Division of Family Chores. Submitted.
with Alberto Alesina and Andrea Ichino
Column in VOXEU. Response. Discussion.
Abstract: Gender Based Taxation (GBT) satisfies Ramsey's optimal criterion because it taxes less the more elastic labor supply of women. This holds when different elasticities between men and women are taken as exogenous. We study GBT in a model in which labor supply and elasticity differences emerge endogenously from the bargained allocation of family duties. We explore two polar cases which summarize the channels through which GBT affects an economy encompassing a wider set of possible reasons for gender differences. In the first case, men have a superior bargaining power and take less family chores. In the second case, women take up more chores because they have a comparative advantage in household activities. We show how GBT changes the intrafamily bargaining solution and leads to a more balanced allocation of chores and labor market outcomes across spouses. This increases total family income, expands the tax base and reduces distortions per unit of government spending. In the first polar case, both the benefits from the Ramsey elasticity rule and the gains from the endogenous expansion of the tax base make GBT an optimal policy tool. In the second polar case, these gains must be weighted against the costs in the production of the household good.

One Dollar, One Vote. Update: October 2009. Submitted.
with Igor Barenboim
Abstract: We revisit the relationship between inequality and redistribution in a panel of advanced OECD countries. Using panel data methods that hold constant a variety of determinants of the public redistributive policy, we find a non-monotonic relationship between distribution of income and redistribution. Relatively to mean income, a more affluent rich and middle class are associated with lower and a richer poor class with higher public spending for redistribution. These results are consistent with what we define as a one dollar, one vote politico-economic equilibrium: When the income of a group of citizens rises (relative to mean income), aggregate redistributive policies tilt towards this group's most preferred public policy.

The Political Economy of Intergenerational Income Mobility. Forthcoming in the Economic Inquiry.
with Andrea Ichino and Enrico Moretti
Abstract: The intergenerational elasticity of income is considered one of the best summary statistics of the degree to which a society gives equal opportunity to all its members. While much is known on how to measure this parameter, we know less about its politico-economic interpretation. Our model shows how the interaction between private and collective decisions determines the equilibrium level of social mobility. In particular, two societies with similar economic and biological fundamentals may display different degrees of intergenerational mobility depending on their political institutions. We offer evidence in line with this model. We conclude that cross country differences in the intergenerational elasticity of income cannot be fully understood without taking into account their politico-economic determinants.