Dr Luca Rondina

Household Taxation and Intra-household Redistributions in a Limited Commitment Household model

Abstract. This paper investigates the effects of a transition from joint to single filing tax system on intra-household allocations and household members' individual welfare. This quantitative analysis is done using a dynamic version of the collective household model where household members can accumulate human capital by supplying hours to the labour market and individual bargaining power in the marriage can be in influenced by the value of an outside option. The underlying mechanism that drives intra-household redistributions of consumption is the following: when the tax system changes from joint to single filing, the marginal tax rate on secondary earners' income decreases while the marginal tax rate on primary earners' income increases. This creates an incentive for secondary earners to supply more hours to the labour market which it will eventually increase their stock of human capital through more experience in the workplace. When this happens, the value of the outside option (divorce) for secondary earner increases which makes the participation constraint in the limited commitment marriage contract more likely to bind and the Pareto weight on the secondary earner utility to increase. A higher bargaining power in the household creates a redistribution of consumption from primary to secondary earners.

Loose Commitment in a Sticky Wages New Keynesian model

Abstract. This paper studies optimal monetary policy under loose commitment in a model with staggered price and wage setting. Under loose commitment, the policymaker commits to a policy plan but occasionally reneges on past promises with an exogenous probability. The probability of commitment is common knowledge to the rational agents in the model which makes central bank credibility imperfect. The loose commitment framework includes the limiting cases of full commitment and discretion as special cases and allows us to investigate the relationship between credibility and welfare losses: when a central bank marginally increases its credibility, welfare losses are reduced. The welfare gain is largely independent on the initial credibility level. Moreover, the output-inflation stabilisation trade-off and the response of endogenous variables to exogenous shocks change with the degree of commitment.