Ayse Imrohoroglu

For a sizable fraction of the homeless population, homelessness is a temporary state often triggered by shocks to income. In this paper, we examine economic policies that may help reduce the flow to homelessness for these individuals. We construct a model economy that is calibrated to capture especially the lower tail of the income distribution where bad enough shocks to income leave some people homeless. We use the model economy to examine the effectiveness of several policies such as rental subsidies, housing vouchers, and relaxation of borrowing constraints in reducing the flow to homelessness at the steady state. Our findings indicate that rent subsidy directed at particular sized units results in the lowest rate of homelessness while relaxing borrowing constraints results in the highest rate of homelessness.

Optimal taxation of top income has gained a lot of attention as a natural consequence of the increasing inequalities in income and wealth in the U.S. in the last 40 years. This was also a period when marginal income tax rates decreased substantially. In this paper, we examine the optimal taxation of top income earners in a model with an entrepreneurial decision making process. Taking entrepreneurs into account could be potentially important for understanding the implications of top income taxation on welfare, inequality, and government revenues since 40% of the top 1% of income earners are entrepreneurs.

This paper examines the time path of saving rates between 1970 and 2010 in Chile, Colombia, and Mexico through the lens of the neoclassical growth model. The findings indicate that two factors, the growth rate of TFP and fiscal policy, are able to account for some of the major fluctuations in saving rates observed during
this period. In particular, we find that the model accounts for the low saving rates in Chile compared to Colombia until the late 1980s and the reversal in the saving rates thereafter. Also, a combination of high TFP growth and tax reforms that substantially reduced capital taxation seems to be responsible for the impressive increase in Chile’s saving rate in mid 1980s.

The share of wealth held by the top one percent of Americans has increased from about 24% in 1980 to 40% in 2010. This paper examines the potential role played by three factors in accounting for this increase - decline in the corporate tax rates, increase in the income risk, and the decline in the world interest rates. Our model consists of altruistic households who either run a business or work for others. Entrepreneurial households enjoy high returns due to high productivity while worker households' savings earn the bank deposit rate that is determined in a competitive banking sector and equals the rate of return on foreign bonds. We find that entrepreneurship and intergenerational links via altruism are important factors generating a wealth distribution that mimics the data in the 2000s. However, it is the decline in the interest rate that plays a major role in accounting for the increase in the U.S. wealth inequality since the 1980s. In our model, the decline in the interest rate increases wealth inequality as it affects the two types of households differently. Entrepreneurial households benefit from lower financing costs and increase their investments while worker households face lower returns to their savings as the interest rate declines. Other changes such as the changes in taxation and income risk play a less significant role.