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  5. Topics on Housing, Migration and Polarization
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Topics on Housing, Migration and Polarization

Paper Session

Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Conference Room 3
Hosted By: Chinese Economic Association in North America
  • Chair: Russell Wong, Federal Reserve Bank of Richmond

Financial business cycles in a model with banks and occasionally binding collateral constraints

Been-Lon Chen
,
Academia Sinica
Zheng-se Lai
,
National Chengchi University
Shian-Yu Liao
,
Fu Jen Catholic University

Abstract

In a real business cycle model with heterogeneous agents and collateral constraints, we study impulse responses to default-redistribution and loan-to-value shocks. With banks and always binding constraints as in Iacoviello (2015), output increases after entrepreneur defaults and decreases after positive impatient household LTV shocks, inconsistent with evidence. Without banks but occasionally binding constraints as in Jensen et al. (2018), consumption decreases under positive LTV shocks, also inconsistent. In contrast, with banks and occasionally binding constraints, consumption, investment, and output decrease together under entrepreneur defaults while increasing together after positive impatient household LTV shocks. This matches the empirical results. The model with banks and occasionally binding constraints resolves the inconsistencies of previous models by allowing constrained optimization with shocks to shift regimes between binding and non-binding collateral constraints. This demonstrates the importance of incorporating occasionally binding constraints in models with financial frictions for accurately representing cyclical dynamics.

Rural-Urban Migration and Informality

Pei-Ju Liao
,
National Taiwan University
Ping Wang
,
Washington University-St Louis and NBER
Yin-Chi Wang
,
National Taipei University

Abstract

During the post-WWII episode, we observe large rural-urban migration in developing countries and sizable informality particularly in Sub-Saharan Africa and Latin America, whereasthe intensity of migration and the extent of informality exhibit great divergence. In this paper, we highlight the informal urban sector as a most accessible outlet for migrant workers. Accordingly, we investigate how rural migration and informality interplay, what their macroeconomic consequences are and whether some frequently adopted migration and industrial policies may be productive in the course of economic development. In general equilibrium, we show that higher altruism on remittance or a decrease in migration disutility results in an expansion of the informal sector, a positive correlation between remittance and informality as well as between migration and informality. A higher altruism on remittance or a decrease in migration disutility results in an expansion of the informal sector, a positive correlation between remittance and informality as well as between migration and informality. As a consequence, the aggregate informal output is higher, but the effect on aggregate formal output or aggregate output is ambiguous. when running a formal firm is relatively more disadvantageous (e.g., a larger regulatory cost, a higher corporate tax or a worse infrastructure provision), the size of the informal sector may shrink or expand, depending on the relative changes of the two productivity cut-offs. This this implies a large variation in the size of informality.

Automation, Polarization, and the Dynamics of Otimum Tax Progressivity

Minchung Hsu
,
National Graduate Institute for Policy Studies
Yi-Chan Tsai
,
National Taiwan University
C.C. Yang
,
Academia Sinica

Abstract

This paper presents a calibrated U.S. economy in which employment and wage polarization and their nuances as documented by Autor and Dorn (2013) and Autor (2015) arise from automation. In the face of polarization, we ask: how should tax progressivity imposed on earnings be set in response? We quantitatively characterize the dynamics of optimum tax progressivity.

Strategic Complementarity and the Rise of Polarization: Theory and Evidence

Pui-Hang Wong
,
Maastricht University
Russell Wong
,
Federal Reserve Bank of Richmond

Abstract

Many protests and movements are decentralized nowadays. We propose a search-and-matching model of protest and voting which features strategic complementarity and multiple threshold equilibria. In the "quiet" equilibrium, the comparative statics behave like the model of strategic substitutability, e.g., protests occur infrequently, and repression reduces the success of protest voting, which becomes the opposite in the "unrest" equilibrium. To test the theory, we construct a new database detailing the deployment of tear gas during the 2019 street protests in Hong Kong. Using the coordinates of police stations as the instrument, we find that deploying tear gas widens the support to protest voting (rookie candidates without any mainstream platform) by 57 log points and increases their chance of winning the subsequent local election by 33%, which is consistent with the "unrest" equilibrium. Such effects are missing in the previous elections even after a series of smaller-scale protests, consistent with the switch from the "quiet" equilibrium to the "unrest" equilibrium, i.e., the rise of polarization.
JEL Classifications
  • E0 - General
  • P0 - General