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David Domeij

Bio: David Domeij is an academic researcher from Stockholm School of Economics. The author has contributed to research in topics: Welfare & Earnings. The author has an hindex of 14, co-authored 39 publications receiving 1505 citations.

Papers
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Journal ArticleDOI
TL;DR: Artificial data: The Matlab code generating the artificial data is available upon request (it is currently a mess - possibly the authors will eventually find time and spirit to clean it up and put the code here).

420 citations

Posted Content
TL;DR: The authors compare a representative-agent economy to an economy in which households face idiosyncratic uninsurable income risk, and find that capital tax cuts imply large welfare gains in the representative agent economy.
Abstract: This article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes. We compare a representative-agent economy to an economy in which households face idiosyncratic uninsurable income risk. The income process is consistent with empirical estimates and implies a realistic wealth distribution. We find that capital tax cuts imply large welfare gains in the representative-agent economy. However, when households are heterogeneous, substantial redistribution during transition means that only a minority will support capital tax cuts, whereas most households can expect large welfare losses.

254 citations

Journal ArticleDOI
TL;DR: The authors compare a representative-agent economy to an economy in which households face idiosyncratic uninsurable income risk, and find that capital tax cuts imply large welfare gains in the representative agent economy.
Abstract: This article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes. We compare a representative-agent economy to an economy in which households face idiosyncratic uninsurable income risk. The income process is consistent with empirical estimates and implies a realistic wealth distribution. We find that capital tax cuts imply large welfare gains in the representative-agent economy. However, when households are heterogeneous, substantial redistribution during transition means that only a minority will support capital tax cuts, whereas most households can expect large welfare losses.

201 citations

Journal ArticleDOI
TL;DR: In this paper, the authors use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change and find that the model explains a small but significant fraction of capital flows between OECD countries, in particular after 1985.
Abstract: We use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change. We compare model implications and actual current account data and find that the model explains a small but significant fraction of capital flows between OECD countries, in particular after 1985. 1. INTRODUCTION According to the life-cycle theory, consumption as a fraction of income varies with age. Taking this argument one step further, a country’s savings rate depends on the age structure of its population. This direct link between demographics and savings, investment, and capital flows has been addressed in a number of papers. Fair and Dominguez (1991) find mixed evidence for this story using quarterly U.S. data, whereas Higgins and Williamson (1997), Higgins (1998), and Lane and Milesi-Ferretti (2001) find strong support for the story using lower-frequency data for a large number of countries. In this article, we use another approach to examine the same link from demographics to savings, investment, and international capital flows. Rather than directly testing for correlations between a country’s age structure and these macroeconomic variables, we use a standard neoclassical model that is consistent with the life-cycle theory. We calibrate this model with population data and projections for a large number of countries, and examine if the data generated by the model can explain real-world capital flows. In addition to controlling for the domestic age structure, this approach allows us to control for a changing demographic structure in the world economy. In the coming decades, most developed countries will face aging populations and smaller fractions of prime-age workers in the population. Theory and the empirical results found by, for example, Higgins (1998) then predict that current account balances will fall. It is not possible, however, that all countries simultaneously run current

112 citations

Journal ArticleDOI
TL;DR: In this paper, a simple random-walk process captures much of the life-cycle dynamics of the Swedish earnings process, and it is shown that the true earnings process is not a random walk.

88 citations


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Book
01 Jan 2000
TL;DR: In this paper, an introduction to recursive methods for dynamic macroeconomics is presented, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design.
Abstract: Recursive methods offer a powerful approach in dynamic macroeconomics. This book contains both an introduction to recursive tools, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design. The tools are presented with enough technical sophistication to get the reader started working on practical problems. When numerical simulations are called for, the book provides suggestions for how to proceed, as well as references for further reading. The applications cover many substantive issues in macroeconomics, such as equilibrium asset prices, market incompleteness, wealth distribution, fiscal-monetary theories of inflation, government debt, optimal labour and capital taxation, time consistency and credible government policies, optimal social insurance, economic growth and labour market dynamics.

1,685 citations

Journal ArticleDOI
TL;DR: This article showed that a large fraction of the growth in residual wage inequality between 1973 and 2003 is due to spurious composition effects, which are linked to the secular increase in the level of experience and education of the workforce, two factors associated with higher within group wage dispersion.
Abstract: Using data from the May and Outgoing Rotation Group (ORG) supplements of the CPS, this paper shows that a large fraction of the growth in residual wage inequality between 1973 and 2003 is due to spurious composition effects. These composition effects are linked to the secular increase in the level of experience and education of the workforce, two factors associated with higher within-group wage dispersion. I also show that both the level and growth in residual wage inequality are overstated in March CPS data that have been used in most previous studies. Measured wages are noisier in the March than in the May/ORG CPS because the March CPS does not measure directly the hourly wages of workers paid by the hour. The extent of measurement error in CPS wages also increases over time. Once these factors are corrected for, I find that residual wage inequality only accounts for a small share of the overall growth in wage inequality. Furthermore, all of the growth in residual wage inequality occurs during the 1980s. This closely mirrors the pattern of change in “between-group” wage differentials like the college-high school wage premium. Overall, the magnitude and timing of the growth in residual wage inequality provides little evidence of a pervasive increase in the demand for skill due, for instance, to skill-biased technological change.

972 citations

Journal ArticleDOI
TL;DR: In this article, the authors developed a new methodology for identifying episodes of extreme capital flow movements using data that differentiates activity by foreigners and domestics, and identified episodes of "surges" and "stops" (sharp increases and decreases, respectively, of gross inflows) and "flight", "retrenchment", and "outflow".

802 citations

Journal ArticleDOI
TL;DR: In this paper, a life cycle model of labour supply, retirement, and savings behavior in which future health status and wages are uncertain is presented, and the model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65.
Abstract: This paper estimates a life cycle model of labour supply, retirement, and savings behaviour in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labour, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labour force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labour force by only three months.

712 citations

Journal ArticleDOI
TL;DR: The authors construct a quantitative, general equilibrium, overlapping-generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability, and show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data.
Abstract: Previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings, and that makes the richest households hold onto large amounts of wealth, even during very old age. I construct a quantitative, general equilibrium, overlapping-generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability. I show that voluntary bequests can explain the emergence of large estates, while accidental bequests alone cannot, and that adding earnings persistence within families increases wealth concentration even more. I also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data.

677 citations