Abstract:
Energy price shocks are large and persistent relative to other price shocks. How do these shocks affect households across income groups? To quantify the welfare effects of energy price shocks, I develop a heterogeneous-agent incomplete market model featuring non-homothetic consumption preferences, commuting costs, and energy as a factor of production for non-energy goods, taking the energy price as exogenous. A calibrated version of the model successfully reproduces many salient features of United States data, including the cross-sectional distributions of employment, income, wealth, and expenditure shares on energy consumption for both commuting and residential utilities. Quantitatively, I find that a positive energy price shock similar to the one in 2021 results in disproportionate welfare losses across income groups, with the bottom quintile losing almost twice as much as the top quintile in terms of consumption on impact. While the shock's direct impact on consumption dominates for low-income households, high-income households are mainly affected through changes in wage and rental rate. I also show that while work from home opportunity exacerbates consumption inequality, targeted transfer helps to mitigate it.
Publications
Progressive Income Taxation and Consumption Baskets of Rich and Poor
Journal of Economic Dynamics and Control, December 2023, 157: 104758
Abstract: In this paper, I analyze the implications of differences in consumption baskets across income groups to evaluate the effects of redistributive taxation on efficiency and inequality. To this end, I develop a static multi-sector general equilibrium model incorporating a parametric tax function, non-homothetic consumption preferences, and endogenous labor supply, with varying compositions of skilled and unskilled labor in production across sectors. A calibrated version of the model captures the cross-sectional differences in the compositions of households' consumption baskets in the United States. I find that considering the differences in consumption baskets between high- and low-income households leads to a lower optimal choice of income tax progressivity compared to the conventional approach that ignores this feature of the data.
Works in Progress
Taxing Fairly: Adjusting Progressivity to Rising Income Inequality and New Consumption-Leisure Patterns
The Distributional and Aggregate Effects of Carbon Taxes
(with
German Cubas)