Staff Reports | Federal Reserve Bank of Minneapolishttps://www.minneapolisfed.org/research/staff-reports/rssStaff Reportsen{F8CDB199-5D3D-4FEC-9083-249B82C9832E}https://www.minneapolisfed.org/research/staff-reports/sovereign-default-risk-and-firm-heterogeneityStaff report 547 (Revised February 2024): Sovereign Default Risk and Firm Heterogeneity by Arellano, Bai, BocolaThis paper measures the output costs of sovereign risk by combining a sovereign debt model with firm- and bank-level data. An increase in sovereign risk lowers the price of government debt and has an adverse impact on banks’ balance sheets, disrupting their ability to finance firms. The resulting fall in credit supply impacts firms directly, as they need to borrow at higher interest rates, and indirectly through general equilibrium effects on the price of inputs and other goods. Importantly, firms are not equally affected by these developments: those that have greater financing needs and that borrow from banks that hold more government debt are mostly affected by the change in borrowing rates, while firms that do not borrow are only impacted indirectly. We show that these direct and indirect effects can be recovered using a firm-level regression, which we estimate using Italian data. We calibrate our model to match the measured firm-level elasticities and find that heightened sovereign risk was responsible for one-third of the observed output decline during the Italian debt crisis.<br/>Thu, 08 Feb 2024 00:00:00 -0600{EFD90171-B77F-4F2D-9A7D-68FE04E1226C}https://www.minneapolisfed.org/research/staff-reports/discrete-choice-complete-markets-and-equilibriumStaff report 656 (February 2024): Discrete Choice, Complete Markets, and Equilibrium by Mongey, WaughThis paper characterizes the allocations that emerge in general equilibrium economies populated by households with preferences of the additive random utility type that make discrete consumption, employment or spatial decisions. We start with a complete markets economy where households can trade claims contingent upon the realizations of their preference shocks. We (i) establish a first and second welfare theorem, (ii) illustrate that in the absence of ex-ante trade, discrete choice economies are generically inefficient, (iii) show that complete markets are not necessary and a much smaller set of securities decentralizes the efficient allocation. We illustrate the relevance of these results in several canonical settings and for measuring how welfare changes in response to changes in prices.<br/>Wed, 07 Feb 2024 00:00:00 -0600{2A219E73-56CC-41EB-BE97-E6DDE1D87092}https://www.minneapolisfed.org/research/staff-reports/micro-risks-and-robust-pareto-improving-policiesStaff report 625 (Revised February 2024): Micro Risks and (Robust) Pareto Improving Policies by Aguiar, Amador, ArellanoWe provide sufficient conditions for the feasibility of robust Pareto-improving (RPI) fiscal policies in the class of incomplete markets models of Bewley-Huggett-Aiyagari and when the interest rate on government debt is below the growth rate _(r < g)_. We allow for arbitrary heterogeneity in preferences and income risk and a potential wedge between the return to capital and to government bonds. An RPI improves risk sharing and can induce a more efficient level of capital. We show that the elasticities of aggregate savings to changes in interest rates are the crucial ingredients that determine the feasibility of RPIs. We establish that government debt and capital investment associated with an RPI may be complements along the transition, rather than the traditional substitutes. Our analysis shifts the focus of fiscal policy in incomplete markets from explicitly redistributive policies to using government bonds and simple subsidies to robustly improve welfare of all agents at all points in time.<br/>Mon, 05 Feb 2024 00:00:00 -0600{8D371428-879C-4825-B218-5633B6F28677}https://www.minneapolisfed.org/research/staff-reports/how-do-households-respond-to-income-shocksStaff report 655 (December 2023): How Do Households Respond to Income Shocks? by Krueger, Malkov, PerriWe use panel data from the Italian Survey of Household Income and Wealth from 1991 to 2016 to document empirically what components of the household budget constraint change in response to shocks to household labor income, both over shorter and over longer horizons. We show that shocks to labor income are associated with negligible changes in transfers and non-labor income components, modest changes in consumption expenditures, and large changes in wealth. We then split the sample in households which do not own business or real estate wealth, and households who do. For the first group, we find that consumption responses are more substantial (and increasing with the horizon of the income shock) and wealth responses are much smaller. We show that, for this group, a version of the standard PIH framework that allows for partial insurance against even permanent income shocks can explain well the consumption and wealth responses, both at short and long horizons. For the second group the standard framework cannot explain the large changes in wealth associated with income shocks. We conclude that models which include shocks to the value of household wealth are necessary to fully evaluate the sources and the consequences of household resource risk.<br/>Tue, 05 Dec 2023 00:00:00 -0600{4AAC521D-FD90-407D-BD53-E58F2F510C7C}https://www.minneapolisfed.org/research/staff-reports/preemptive-austerity-with-rollover-riskStaff report 654 (October 2023): Preemptive Austerity with Rollover Risk by Conesa, KehoeBy _preemptive austerity_, we mean a policy that increases taxes to deter potential rollover crises. The policy is so successful that the usual danger signal of a rollover crisis, a high yield on new bonds sold, does not show up because the policy eliminates the danger. Mechanically, high taxes make the safe zone in the model - the set of sovereign debt levels for which the government prefers to repay its debt rather than default - larger. By announcing a high tax rate at the beginning of the period, the government ensures that tax revenue will be high enough to service sovereign debt becoming due, which deters panics by international lenders but is ex-post suboptimal. That is why, as it engages in preemptive austerity, the government continues to reduce the level of debt to a point where, asymptotically, high taxes are no longer necessary.<br/>Mon, 30 Oct 2023 00:00:00 -0500{491D2474-C7E9-4AD5-8A1F-AC637548B5DC}https://www.minneapolisfed.org/research/staff-reports/monetary-policy-and-sovereign-risk-in-emerging-economies-nk-defaultStaff report 592 (Revised October 2023): Monetary Policy and Sovereign Risk in Emerging Economies (NK-Default) by Arellano, Bai, MihalacheThis paper develops a New Keynesian model with sovereign default risk. Inflation is set by forward-looking firms, monetary policy is an interest rate rule, and the fiscal government borrows externally, long-term, with an option to default. In this framework, default risk creates inflation pressures through an expectations channel, and tight monetary policy disincentivizes fiscal overborrowing. The model sheds light on temporary inflation events in emerging market data, short-lived spikes in inflation, spreads, and domestic policy rates. As spreads rise, firms increase their prices in expectation of higher future inflation during defaults. Monetary policy tightens, which reduces inflation and helps bring spreads down by disciplining government borrowing. These monetary-fiscal interactions imply that delivering the flexible price allocation may not be optimal for monetary policy.<br/>Wed, 18 Oct 2023 00:00:00 -0500{D1FAAA3A-1FB1-43EE-8438-7A2C00C1E430}https://www.minneapolisfed.org/research/staff-reports/heterogeneous-agent-tradeStaff report 653 (October 2023): Heterogeneous Agent Trade by WaughThis paper studies the implications of household heterogeneity for trade. I develop a model where household heterogeneity is induced via incomplete markets and results in heterogeneous price elasticities. Conditional on exposure to trade, heterogeneous price elasticities imply that different households value price changes differently, and thus rich and poor households experience different gains from trade. I calibrate the model to match bilateral trade flows and micro-facts about household-level expenditure patterns and elasticities. I find gains from trade that are pro-poor and that the average gains from trade are substantially larger than representative agent benchmarks.Wed, 18 Oct 2023 00:00:00 -0500{8FE562B7-A462-4A0F-9A93-0CAE4CB1AD83}https://www.minneapolisfed.org/research/staff-reports/the-great-resignation-and-optimal-unemployment-insuranceStaff report 652 (October 2023): The Great Resignation and Optimal Unemployment Insurance by Cai, HeathcoteHow generous should social insurance be when quits account for a large share of transitions into non-employment? We address this question using a multi-sector directed search model extended to incorporate endogenous quits both to other jobs and to non-employment. Workers quit too often in the competitive equilibrium, and private markets co-ordinate on excessively high “efficiency” wages. Quantitatively, we find that unemployment insurance is optimally much less generous in an economy with quits than in one without. An extended Baily-Chetty formula is derived to illustrate the source of this difference.<br/>Mon, 16 Oct 2023 00:00:00 -0500{2B83C6BF-66BB-491F-A325-4333D9AA64BF}https://www.minneapolisfed.org/research/staff-reports/the-impact-of-multinationals-along-the-job-ladderStaff report 651 (October 2023): The Impact of Multinationals Along the Job Ladder by Balsvik, Fitzgerald, HallerMultinational affiliates are more productive than domestic firms, so how do they affect a host country through the labor market? We use data for Norway to show that the labor market is characterized by a job ladder, with multinationals on the upper rungs. We calibrate a general equilibrium job ladder model with endogenous multinational entry to the Norwegian data. In a counterfactual where multinationals face an infinite entry cost, payments to labor fall and profits of domestic firms rise, but the impact is heterogeneous. Competition for workers increases low down on the job ladder, while it decreases high up.<br/>Thu, 12 Oct 2023 00:00:00 -0500{DFBD23E7-9213-4678-9C54-627D51001176}https://www.minneapolisfed.org/research/staff-reports/the-recent-rise-in-us-inflation-policy-lessons-from-the-quantity-theoryStaff report 650 (August 2023): The Recent Rise in US Inflation: Policy Lessons from the Quantity Theory by Gao, NicoliniWe build a scenario for inflation in the United States in the years to come. Following Gao, Kulish, and Nicolini (2021), we use the quantity theory of money as a conceptual framework and confront the theory with evidence from both the United States and other OECD countries. We argue that a) the quantity theory of money works very well in the medium term, which we define to be close to four years; b) deviations from the inflation rate predicted by the quantity theory tend to disappear in the medium term; c) the burst in inflation that started in 2012 in the United States is a deviation from the inflation rate predicted by the quantity theory; and d) if the policy framework does not change, we expect inflation to be back close to its 2% target no later than 2025.<br/>Thu, 31 Aug 2023 00:00:00 -0500{13BE49F1-B056-42BD-A288-55D4462B6985}https://www.minneapolisfed.org/research/staff-reports/the-impact-of-vaccines-and-behavior-on-us-cumulative-deaths-from-covid19Staff report 649 (August 2023): The Impact of Vaccines and Behavior on U.S. Cumulative Deaths from COVID-19 by AtkesonThe CDC reports that 1.13 million Americans have died of COVID-19 through June of 2023. I use a model of the impact over the past three years of vaccines and private and public behavior to mitigate disease transmission during the COVID-19 pandemic in the United States to address two questions. First, holding the strength of the response of behavior to the level of daily deaths from COVID-19 fixed, what was the impact of vaccines on cumulative mortality from COVID-19 up through June 2023? And second, holding the pace of deployment of vaccinations fixed, what would have been the impact of stricter or looser behavioral responses to COVID-19 deaths on cumulative mortality from COVID-19 over this same time period? In answering the first question, I find that vaccines saved 748,600 lives through June 2023. That is, without vaccines, cumulative mortality from COVID-19 would have been closer to 1.91 million over this time period. In answering the second question, I find that behavioral efforts to slow the transmission of the virus before vaccines became widely administered were critical to this positive impact of vaccines on cumulative mortality. For example, with a complete relaxation of these mitigation efforts, vaccines would have come too late to have saved a significant number of lives. Earlier deployment of vaccines would have saved many lives. I find that marginal changes in the strength of the behavioral response to COVID-19 deaths within the range of those responses estimated with the model have a significantly smaller impact on cumulative COVID-19 mortality over this time period.<br/>Wed, 23 Aug 2023 00:00:00 -0500{EEB95CFA-43E2-4A20-B9C8-721F9CF1065F}https://www.minneapolisfed.org/research/staff-reports/more-unequal-we-stand-inequality-dynamics-in-the-united-states-19672021Staff report 648 (August 2023): More Unequal We Stand? Inequality Dynamics in the United States, 1967–2021 by Heathcote, Perri, Violante, ZhangHeathcote et al. (2010) conducted an empirical analysis of several dimensions of inequality in the United States over the years 1967-2006, using publicly-available survey data. This paper expands the analysis, and extends it to 2021. We find that since the early 2000s, the college wage premium has stopped growing, and the race wage gap has stalled. However, the gender wage gap has kept shrinking. Both individual- and household-level income inequality have continued to rise at the top, while the cyclical component of inequality dominates dynamics below the median. Inequality in consumption expenditures has remained remarkably stable over time. Income pooling within the family and redistribution by the government have enormous impacts on the dynamics of household-level inequality, with the role of the family diminishing and that of the government growing over time. In particular, largely due to generous government transfers, the COVID recession has been the first downturn in fifty years in which inequality in disposable income and consumption actually declined.<br/>Tue, 01 Aug 2023 00:00:00 -0500{7C46D2CC-F1D1-44E1-AB8A-4CA146E3B48E}https://www.minneapolisfed.org/research/staff-reports/the-end-of-privilege-a-reexamination-of-the-net-foreign-asset-position-of-the-united-statesStaff report 639 (Revised July 2023): The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States by Atkeson, Heathcote, PerriThe U.S. net foreign asset position has declined sharply since 2007 and is currently negative 65 percent of U.S. GDP. This deterioration primarily reflects a U.S.-specific rise in corporate asset values that has inflated the value of U.S. equity liabilities to the rest of the world. To interpret these trends we develop an international macro finance model of flows, stocks, asset valuations, the current account, and the net foreign asset position. We find that the welfare impact of rising asset values for a representative U.S. household has been quite negative given extensive foreign ownership of U.S. corporate equity.<br/>Wed, 12 Jul 2023 00:00:00 -0500{9D114C48-9BBB-4612-A51A-2F66B4507F19}https://www.minneapolisfed.org/research/staff-reports/taxes-regulations-and-the-value-of-us-corporations-a-reassessmentStaff report 647 (July 2023): Taxes, Regulations, and the Value of U.S. Corporations: A Reassessment by McGrattanThis paper reassesses the conclusions of McGrattan and Prescott (2005), which derived the quantitative implications of growth theory for U.S. corporate valuations. In addition to having two more decades of data, the analysis incorporates recent changes in policies that affect corporate investments, taxes, and legal-form choice. Secular trends identified in the earlier period remain, with little change in the tangible capital-output ratio or profit share of output. Corporate valuations remain high relative to the postwar average, in line with the theoretical prediction. Critical to this prediction is the decline in effective tax rate on distributions and the rise of foreign direct investment abroad. With the recent enactment of the Tax Cuts and Jobs Act, corporate valuations are predicted to rise even further relative to GDP.<br/>Wed, 12 Jul 2023 00:00:00 -0500{F30BADD6-340A-494E-8BB8-DC65EFB9A514}https://www.minneapolisfed.org/research/staff-reports/pareto-improving-fiscal-and-monetary-policies-samuelson-in-the-new-keynesian-modelStaff report 646 (June 2023): Pareto Improving Fiscal and Monetary Policies: Samuelson in the New Keynesian Model by Aguiar, Amador, ArellanoThis paper explores the positive and normative consequences of government bond issuances in a New Keynesian model with heterogeneous agents, focusing on how the stock of government bonds affects the cross-sectional allocation of resources in the spirit of Samuelson (1958). We characterize the Pareto optimal levels of government bonds and the associated monetary policy adjustments that should accompany Pareto-improving bond issuances. The paper introduces a simple phase diagram to analyze the global equilibrium dynamics of inflation, interest rates, and labor earnings in response to changes in the stock of government debt. The framework also provides a tractable tool to explore the use of fiscal policy to escape the Effective Lower Bound (ELB) on nominal interest rates and the resolution of the “forward guidance puzzle.” A common theme throughout is that following the monetary policy guidance from the standard Ricardian framework leads to excess fluctuations in income and inflation.<br/>Fri, 16 Jun 2023 00:00:00 -0500{D9BCAF8B-2647-4CE8-8D0B-499B071E7DBE}https://www.minneapolisfed.org/research/staff-reports/the-labor-market-effects-of-occupational-licensing-in-the-public-sectorStaff report 645 (Revised June 2023): The Labor Market Effects of Occupational Licensing in the Public Sector by Kleiner, WangIn the U.S., occupational licensing is more prevalent in the public sector than in the private sector, but the influence of occupational regulation for public sector workers has not been analyzed in detail. Our study initially examines the probability of a licensed worker selecting into the public sector. Using the probability as a control for these individuals’ risk aversion, we next examine how licensing impacts key labor market outcomes, such as wages, hours worked, and employment in the public sector. Our results show that having an occupational license increases the likelihood of working in the public sector. After adjusting for the selection bias of choosing into the public sector, we find that being in a licensed occupation in the public sector raises wages by about 6% and increases hours worked, but reduces employment, even when controlling for other labor market institutions that also are more prevalent in the public sector such as unionization. Overall, our estimates suggest that the social welfare effects of licensing in the public sector are like those for the whole sample, and they generally result in a welfare loss in the public sector. <br/>Fri, 02 Jun 2023 00:00:00 -0500{2D1B647A-A4A6-49A9-BF27-53121D10EB9B}https://www.minneapolisfed.org/research/staff-reports/on-the-efficiency-of-competitive-equilibria-with-pandemicsStaff report 644 (April 2023): On the Efficiency of Competitive Equilibria with Pandemics by Chari, Kirpalani, PerezThe epidemiological literature suggests that virus transmission occurs only when individuals are in relatively close contact. We show that if society can control the extent to which economic agents are exposed to the virus and agents can commit to contracts, virus externalities are local, and competitive equilibria are efficient. The Second Welfare Theorem also holds. These results still apply when infection status is imperfectly observed and when agents are privately informed about their infection status. If society cannot control virus exposure, then virus externalities are global and competitive equilibria are inefficient, but the policy implications are very different from those in the literature. Economic activity in this version of our model can be inefficiently low, in contrast to the conventional wisdom that viruses create global externalities and result in inefficiently high economic activity. If agents cannot commit, competitive equilibria are inefficient because of a novel pecuniary externality.<br/>Wed, 05 Apr 2023 00:00:00 -0500{6CE7CA39-4FF9-43DA-BFBD-5ADF5317D34A}https://www.minneapolisfed.org/research/staff-reports/a-ramsey-theory-of-financial-distortionsStaff report 643 (February 2023): A Ramsey Theory of Financial Distortions by Bassetto, CuiThe return on government debt is lower than that of asset with similar payoffs. We study optimal debt management and taxation when the government cannot directly redistribute towards the agents in need of liquidity but otherwise has access to a complete set of linear tax instruments. Optimal government debt provision calls for gradually closing the wedge between the returns as much as possible, but tax policy may work as a countervailing force: as long as financial frictions bind, it can be optimal to tax capital even if this magnifies the discrepancy in returns.<br/>Tue, 28 Feb 2023 00:00:00 -0600{860531C0-DE6A-41C4-99C3-51C54A85C090}https://www.minneapolisfed.org/research/staff-reports/what-can-time-series-regressions-tell-us-about-policy-counterfactualsStaff report 642 (February 2023): What Can Time-Series Regressions Tell Us About Policy Counterfactuals? by McKay, WolfWe show that, in a general family of linearized structural macroeconomic models, knowledge of the empirically estimable causal effects of contemporaneous and news shocks to the prevailing policy rule is sufficient to construct counterfactuals under alternative policy rules. If the researcher is willing to postulate a loss function, our results furthermore allow her to recover an optimal policy rule for that loss. Under our assumptions, the derived counterfactuals and optimal policies are robust to the Lucas critique. We then discuss strategies for applying these insights when only a limited amount of empirical causal evidence on policy shock transmission is available.<br/>Mon, 06 Feb 2023 00:00:00 -0600{38ECCE64-5EB3-414F-9858-E82507D67C6C}https://www.minneapolisfed.org/research/staff-reports/a-monetary-fiscal-theory-of-sudden-inflationsStaff report 641 (December 2022): A Monetary-Fiscal Theory of Sudden Inflations by Bassetto, MillerThis paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back bond repayment against the benefit of a more informed saving decision. Through the information channel, small changes in the economic environment can trigger large responses in consumers' behavior and prices. This setting explains why there can be long stretches of time during which government surpluses have large movements with little inflation response; yet, at some point, something snaps, and a sudden inflation takes off that is strongly responsive to incoming fiscal news.<br/>Fri, 16 Dec 2022 00:00:00 -0600{E2F11248-FDFA-4FBF-A4DE-A6A56A6E619A}https://www.minneapolisfed.org/research/staff-reports/deadly-debt-crises-covid-19-in-emerging-marketsStaff report 603 (Revised October 2022): Deadly Debt Crises: COVID-19 in Emerging Markets by Arellano, Bai, MihalacheEmerging markets have experienced large human and economic costs from COVID-19, and their tight fiscal space has limited the support extended to their citizens. We study the impact of an epidemic on economic and health outcomes by integrating epidemiological dynamics into a sovereign default model. The sovereign’s option to default tightens fiscal space and results in an epidemic with limited mitigation and depressed consumption. A quantitative analysis of our model accounts well for the dynamics of fatalities, social distancing, consumption, sovereign debt, and spreads in Latin America. We find that because of default risk, the welfare cost of the pandemic is about a third higher than it is in a version of the model with perfect financial markets. We study debt relief programs and find a compelling case for their implementation. These programs deliver large social gains, improving health and economic outcomes for the country at no cost to international lenders or financial institutions.<br/>Fri, 28 Oct 2022 00:00:00 -0500{A8A74A7B-CDC1-4ED0-A361-A1D9FC40CDF6}https://www.minneapolisfed.org/research/staff-reports/partial-defaultStaff report 589 (Revised July 2022): Partial Default by Arellano, Mateos-Planas, Ríos-RullUsing 50 years of data for emerging markets, we document that sovereign governments partially default often and with varying intensity, resulting in lengthy default episodes with hump-shaped patterns for partial default and debt. Default episodes lead to haircuts for lenders but not to reductions in debt, because the defaulted debt accumulates and the sovereign continues to borrow. We present a theory of partial default that replicates these properties, which are absent in standard sovereign default theory. Partial default is a flexible way to raise funds, as the sovereign chooses its intensity and duration, but it also amplifies debt crises as the defaulted debt accumulates at increasingly high interest rates. This theory rationalizes the patterns of default episodes, the heterogeneity of partial default, and partial default's comovements with spreads, debt, and output. We conduct policy counterfactuals in the form of pari passu and no-dilution clauses and debt relief policies, and we discuss their welfare implications.<br/>Fri, 29 Jul 2022 00:00:00 -0500{3FD49A87-E5B8-4F93-A4CC-06A2E1183677}https://www.minneapolisfed.org/research/staff-reports/the-distributional-impact-of-the-minimum-wage-in-the-short-and-long-runStaff report 640 (July 2022): The Distributional Impact of the Minimum Wage in the Short and Long Run by Hurst, Kehoe, Pastorino, WinberryWe develop a framework with rich worker heterogeneity, firm monopsony power, and putty-clay technology to study the distributional impact of the minimum wage in the short and long run. Our production technology is disciplined to be consistent with the small estimated employment effects of the minimum wage in the short run and the large estimated elasticities of substitution across inputs in the long run. We find that in the short run, a large increase in the minimum wage has a small effect on employment and therefore increases the labor income of the workers who were earning less than the new minimum wage. In the long run, however, the minimum wage has perverse distributional implications in that it reduces the employment, income, and welfare of precisely the low-income workers it is meant to help. Nonetheless, these long-run effects take time to fully materialize because firms slowly adjust their mix of inputs. Existing transfer programs, such as the earned income tax credit (EITC), are more effective at improving long-run outcomes for workers at the low end of the wage distribution. But combining existing programs with a modest increase in the minimum wage generates even larger welfare gains for low-earning workers.<br/>Thu, 14 Jul 2022 00:00:00 -0500{44FFDB6A-784C-4618-B3E5-06C25E9BB7CC}https://www.minneapolisfed.org/research/staff-reports/covid19-vaccination-and-financial-frictionsStaff report 632 (Revised June 2022): COVID-19 Vaccination and Financial Frictions by Arellano, Bai, MihalacheWe study the COVID-19 epidemic in emerging markets that face financial frictions and its mitigation through social distancing and vaccination. We find that restricted vaccine availability in emerging markets, as captured by limited quantities and high prices, renders the pandemic exceptionally costly in these countries, compared with economies without financial frictions. Improved access to financial markets enables a better response to the delay in vaccine supplies, as it supports more stringent social distancing measures before wider vaccine availability. We show that financial assistance programs to such financially constrained countries can increase vaccinations and lower fatalities, at no present-value cost to the international community.<br/>Thu, 30 Jun 2022 00:00:00 -0500{C058E039-8388-4D34-959B-45A08FEF0E64}https://www.minneapolisfed.org/research/staff-reports/how-do-voters-respond-to-welfare-vis-a-vis-public-good-programs-an-empirical-test-for-clientelismStaff report 605 (Revised March 2022): How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism by Bardhan, Mitra, Mookherjee, NathUsing rural household survey data from West Bengal, we find that voters respond positively to excludable government welfare benefits but not to local public good programs, while reporting having benefited from both. Consistent with these voting patterns, shocks to electoral competition induced by exogenous redistricting of villages resulted in upper-tier governments manipulating allocations across local governments only for excludable benefit programs. Using a hierarchical budgeting model, we argue these results provide credible evidence of the presence of clientelism rather than standard political economy theories of programmatic politics.<br/>Thu, 17 Mar 2022 12:38:00 -0500{EA7D4118-4BEE-4DD0-ACF9-35B8834C1B21}https://www.minneapolisfed.org/research/staff-reports/online-appendix-for-how-do-voters-respond-to-welfare-visvis-public-good-programs-an-empirical-test-for-clientelismStaff report 638 (March 2022): Online Appendix for: How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism by Bardhan, Mitra, Mookherjee, NathThis appendix accompanies [Staff Report 605: How Do Voters Respond to Welfare vis-à-vis Public Good Programs? An Empirical Test for Clientelism](https://doi.org/10.21034/sr.605).<br/>Thu, 17 Mar 2022 00:00:00 -0500{B890746B-9C68-47F7-9D8A-ADC41AE2F3F9}https://www.minneapolisfed.org/research/staff-reports/optimal-cooperative-taxation-in-the-global-economyStaff report 581 (Revised March 2022): Optimal Cooperative Taxation in the Global Economy by Chari, Nicolini, TelesHow should countries cooperate in setting fiscal and trade policies when government expenditures must be financed with distorting taxes? We show that even if countries cannot make explicit transfers to each other, every point on the Pareto frontier is production efficient, so that international trade and capital flows should be effectively free. Trade agreements must be supplemented with fiscal policy agreements. Residence-based income tax systems have advantages over source-based systems. Taxing all household asset income at a country-specific uniform rate and setting the corporate income tax to zero yield efficient outcomes. Value-added taxes should be adjusted at the border.<br/>Mon, 07 Mar 2022 00:00:00 -0600{D0E69D42-9B0A-4899-97DF-14B4682E2E9A}https://www.minneapolisfed.org/research/staff-reports/appendix-for-optimal-cooperative-taxation-in-the-global-economyStaff report 637 (March 2022): Appendix for: Optimal Cooperative Taxation in the Global Economy by Chari, Nicolini, TelesThis appendix accompanies [Staff Report 581: Optimal Cooperative Taxation in the Global Economy](https://doi.org/10.21034/sr.581).<br/>Mon, 07 Mar 2022 00:00:00 -0600{03ED5919-584E-4E9D-814F-5B11832E9306}https://www.minneapolisfed.org/research/staff-reports/optimal-agebased-vaccination-and-economic-mitigation-policies-for-the-second-phase-of-the-covid19-pandemicStaff report 636 (January 2022): Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the Covid-19 Pandemic by Glover, Heathcote, KruegerIn this paper, we ask how to best allocate a given time-varying supply of vaccines across individuals of different ages during the second phase of the Covid-19 pandemic . Building on our previous heterogeneous household model of optimal economic mitigation and redistribution (Glover et al., 2021), we contrast the actual vaccine deployment path, which prioritized older, retired individuals, with one that first vaccinates younger workers. Vaccinating the old first saves more lives but slows the economic recovery, relative to inoculating the young first. Vaccines deliver large welfare benefits in both scenarios (relative to a world without vaccines), but the old-first policy is optimal under a utilitarian social welfare function. The welfare gains from having vaccinated the old first are especially significant once the economy is hit by a more infectious Delta variant in the summer of 2021.<br/>Tue, 18 Jan 2022 00:00:00 -0600{404F299F-5521-409C-995B-131255B97AEA}https://www.minneapolisfed.org/research/staff-reports/the-welfare-effects-of-encouraging-ruralurban-migrationStaff report 635 (January 2022): The Welfare Effects of Encouraging Rural-Urban Migration by Lagakos, Mobarak, WaughThis paper studies the welfare effects of encouraging rural-urban migration in the developing world. To do so, we build and analyze a dynamic general-equilibrium model of migration that features a rich set of migration motives. We estimate the model to replicate the results of a field experiment that subsidized seasonal migration in rural Bangladesh, leading to significant increases in migration and consumption. We show that the welfare gains from migration subsidies come from providing better insurance for vulnerable rural households rather than correcting spatial misallocation by relaxing credit constraints for those with high productivity in urban areas that are stuck in rural areas.<br/>Tue, 04 Jan 2022 00:00:00 -0600{FCFB217F-10F3-4F3F-B9B1-5F10046F996C}https://www.minneapolisfed.org/research/staff-reports/constructing-pureexchange-economies-with-many-equilibriaStaff report 631 (Revised December 2021): Constructing Pure-Exchange Economies with Many Equilibria by Gauthier, Kehoe, QuintinWe develop a restart algorithm based on Scarf’s (1973) algorithm for computing approximate Brouwer fixed points. We use the algorithm to compute all of the equilibria of a general equilibrium pure-exchange model with four consumers, four goods, and 15 equilibria. The mathematical result that motivates the algorithm is a fixed-point index theorem that provides a sufficient condition for uniqueness of equilibrium and a necessary condition for multiplicity of equilibria. Examining the structure of the model with 15 equilibria provides us with a method for constructing higher dimensional models with even more equilibria. For example, using our method, we can construct a pure-exchange economy with eight consumers and eight goods that has (at least) 255 equilibria.<br/>Fri, 31 Dec 2021 11:17:00 -0600{4FA65FD9-F76D-43FB-B298-C0C47EEF4C34}https://www.minneapolisfed.org/research/staff-reports/two-illustrations-of-the-quantity-theory-of-money-reloadedStaff report 633 (December 2021): Two Illustrations of the Quantity Theory of Money Reloaded by Gao, Kulish, NicoliniIn this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequency dynamics. We also show that the low-frequency component of the data derived from statistical filters does reasonably well in capturing these regime changes. We conclude that the quantity theory relationships are alive and well, and thus they are useful for policy design aimed at controlling inflation.<br/>Fri, 17 Dec 2021 00:00:00 -0600{27532DC8-72FE-4A71-8C81-E55A0FB1C113}https://www.minneapolisfed.org/research/staff-reports/online-appendix-for-two-illustrations-of-the-quantity-theory-of-money-reloadedStaff report 634 (December 2021): Online Appendix for: Two Illustrations of the Quantity Theory of Money Reloaded by Gao, Kulish, NicoliniThis is the online appendix for [Staff Report 633](https://doi.org/10.21034/sr.633).Fri, 17 Dec 2021 00:00:00 -0600{9DD1262C-59D3-4FAF-9173-20D1568F55EE}https://www.minneapolisfed.org/research/staff-reports/comment-on-star-wars-the-empirics-strike-backStaff report 629 (November 2021): Comment on "Star Wars: The Empirics Strike Back" by Gorajek, MalinUsing a novel meta-analytical method, Brodeur et al. (2016) argue that hypothesis tests in top economic journals have exaggerated levels of statistical significance. Brodeur et al. (2020) apply the same method to another sample of hypothesis tests, obtaining similar results. We investigate the reliability of the method by highlighting questionable assumptions and compiling a dataset to examine their merits. Our findings support the original conclusions.<br/>Thu, 18 Nov 2021 00:00:00 -0600{CEB5DD75-ACE2-4F69-BB22-E4214337ADE1}https://www.minneapolisfed.org/research/staff-reports/online-appendix-for-comment-on-star-wars-the-empirics-strike-backStaff report 630 (November 2021): Online Appendix for: Comment on "Star Wars: The Empirics Strike Back" by Gorajek, MalinThis appendix contains the pre-registered analysis for our comment on “Star Wars: The Empirics Strike Back” by Brodeur et al (2016). To structure the analysis, we reproduce the pre-registration; our results appear in red under each of the relevant parts. The time-stamped version of the pre-registration is available from the Open Science Framework website at the address https://doi.org/10.17605/OSF.IO/58MNJ.<br/><br/>To understand this appendix deeply, we recommend carefully reading Brodeur et al (2016). The body of our comment paper outlines only the intuition of their method. In some of the figures presented in this appendix, we use labels that differ from those in Brodeur et al. (2016), and we do so to more clearly connect to the intuition we offer.<br/>Thu, 18 Nov 2021 00:00:00 -0600{6C32E8FA-22A3-4F2F-9B0A-C2607B410639}https://www.minneapolisfed.org/research/staff-reports/comment-on-iovino-lao-and-mascarenhas-optimal-monetary-policy-and-disclosure-with-an-informationally-constrained-central-bankerStaff report 628 (November 2021): Comment on Iovino, La’O and Mascarenhas, “Optimal Monetary Policy and Disclosure with an Informationally-Constrained Central Banker” by Chari, PerezIovino, La’O and Mascarenhas (forthcoming) ask two important questions regarding the optimal conduct of monetary policy: Should the central bank’s policy depend on information the central bank has that is not available to markets? And should the central bank disclose information that it has but market participants do not? Iovino, La’O and Mascarenhas answer these questions using a simple, stylized model with one-period price stickiness. They show that efficient equilibria can be sustained regardless of whether policy depends on the central bank’s information and regardless of its disclosure policy. We explain the logic behind their irrelevance result and show that if restrictions are imposed on equilibria, then monetary policy should in general depend on the central bank’s information. Finally, we offer some speculative answers to their questions and discuss the sense in which policy is converging towards theory.Tue, 09 Nov 2021 00:00:00 -0600{BA14C585-8C8F-489A-8D18-F659B55F9E0C}https://www.minneapolisfed.org/research/staff-reports/firm-entry-and-exit-and-aggregate-growthStaff report 544 (September 2021): Firm Entry and Exit and Aggregate Growth by Asturias, Hur, Kehoe, RuhlApplying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. To analyze this relationship, we develop a model of firm entry and exit based on Hopenhayn (1992). When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.<br/>Mon, 27 Sep 2021 00:00:00 -0500{19A7BF9A-0619-4806-B780-EC53BBF35F8D}https://www.minneapolisfed.org/research/staff-reports/health-versus-wealth-on-the-distributional-effects-of-controlling-a-pandemicStaff report 600 (Revised September 2021): Health versus Wealth: On the Distributional Effects of Controlling a Pandemic by Glover, Heathcote, Krueger, Ríos-RullTo to get the COVID-19 virus under control, many countries have shut down parts of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have most to lose. We build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young, retired), by sector (basic, luxury), and by health status. Disease transmission occurs in the workplace, through consumption, at home, and in hospitals. We study the optimal economic mitigation policy for a government that can redistribute through taxes and transfers, but where taxation distorts labor supply and output. Optimal redistribution and mitigation policies interact, and more modest shutdowns are optimal when redistribution creates tax distortions. A harder but shorter shutdown is preferred as vaccines become available in the first half of 2021.<br/>Fri, 24 Sep 2021 00:00:00 -0500{2DCA8B50-46B3-4A78-BCE4-8D8CE2EC2CEC}https://www.minneapolisfed.org/research/staff-reports/pandemic-lockdown-the-role-of-government-commitmentStaff report 627 (August 2021): Pandemic Lockdown: The Role of Government Commitment by Moser, YaredThis paper studies lockdown policy in a dynamic economy without government commitment. Lockdown imposes a cap on labor supply, which improves health prospects at the cost of economic output and consumption. A government would like to commit to the extent of future lockdowns in order to guarantee an economic outlook that supports efficient levels of investment into intermediate inputs. However, such a commitment is not credible, since investments are sunk at the time when the government chooses a lockdown. As a result, lockdown under lack of commitment deviates from the optimal policy. Rules that limit a government’s lockdown discretion can improve social welfare, even in the presence of noncontractible information. Quantitatively, lack of commitment causes lockdown to be significantly more severe than is socially optimal. The output and consumption loss due to lack of commitment is greater for higher intermediate input shares, higher discount rates, higher values of life, higher disease transmission rates at and outside of work, and longer vaccine arrival times.<br/>Tue, 03 Aug 2021 00:00:00 -0500{3FF78995-9254-4FB5-A5AA-57D7A92475C0}https://www.minneapolisfed.org/research/staff-reports/practical-optimal-income-taxationStaff report 626 (July 2021): Practical Optimal Income Taxation by Heathcote, TsujiyamaWe review methods used to numerically compute optimal Mirrleesian tax and transfer schedules in heterogeneous agent economies. We show that the coarseness of the productivity grid, while a technical detail in terms of theory, is critical for delivering quantitative policy prescriptions. Existing methods are reliable only when a very fine grid is used. The problem is acute for computational approaches that use a version of the Diamond-Saez implicit optimal tax formula. If using a very fine grid for productivity is impractical, then optimizing within a flexible parametric class is preferable to the non-parametric Mirrleesian approach.<br/>Fri, 30 Jul 2021 00:00:00 -0500{BC096AC0-BEE9-4173-B191-F863E7C3A3AD}https://www.minneapolisfed.org/research/staff-reports/clientelistic-politics-and-pro-poor-targeting-rules-versus-discretionary-budgetsStaff report 624 (May 2021): Clientelistic Politics and Pro-Poor Targeting: Rules versus Discretionary Budgets by Mookherjee, NathPast research has provided evidence of clientelistic politics in delivery of program benefits by local governments (_gram panchayats (GPs)_), and manipulation of GP program budgets by legislators and elected officials at upper tiers in West Bengal, India. Using household panel survey data spanning 1998-2008, we examine the consequences of clientelism for distributive equity. We find that targeting of anti-poverty programs was progressive both within and across GPs, and is explained by greater 'vote responsiveness' of poor households to receipt of welfare benefits. Across-GP allocations were more progressive than a rule-based formula recommended by the 3rd State Finance Commission (SFC) based on GP demographic characteristics. Moreover, alternative formulae for across-GP budgets obtained by varying weights on GP characteristics used in the SFC formula would have improved pro-poor targeting only marginally. Hence, there is not much scope for improving pro-poor targeting of private benefits by transitioning to formula-based budgeting.<br/>Tue, 04 May 2021 00:00:00 -0500{2BDC52D4-153F-4C6E-BB10-CCECACCBCFEF}https://www.minneapolisfed.org/research/staff-reports/the-effect-of-constitutional-provisions-on-education-policy-and-outcomesStaff report 623 (April 2021): The Effect of Constitutional Provisions on Education Policy and Outcomes by Dallman, Nath, PremikEducation services in the United States are determined predominantly by non-market institutions, the rules of which are defined by state constitutions. This paper empirically examines the effect of changes in constitutional provisions on education outcomes in the United States. To show causal effects, we exploit discontinuities in the procedure for adopting constitutional amendments to compare outcomes when an amendment passed with those when an amendment failed. Our results show that adoption of an amendment results in higher per-pupil expenditure, higher teacher salaries, smaller class size, and improvements in reading and math test scores. We examine the underlying mechanism driving these results by studying the actions of the legislature and the courts after an amendment is passed. We find that, on average, the legislature responds with a one-year lag in enacting education policies satisfying the minimum standards imposed by the amendment, and there is no increase in the number of education cases reaching appellate courts. Using school finance reforms, we also show that in situations where the legislature fails to enact education policies, courts intervene to enforce constitutional standards to improve outcomes. This enforcement mechanism is more impactful in states that have higher constitutional minimum standards. Taken together, the causal effects on education outcomes and the patterns in legislative bill enactments and court cases provide a novel test of the hypothesis that a strong constitutional provision improves the bargaining position of citizens vis-à-vis that of elected leaders. If citizens do not receive education services as mandated in the constitution, they can seek remedy in court.<br/>Mon, 26 Apr 2021 00:00:00 -0500{F3AF1D18-5E26-488A-AEDC-5C9B12BD9909}https://www.minneapolisfed.org/research/staff-reports/lumpy-durable-consumption-demand-and-the-limited-ammunition-of-monetary-policyStaff report 622 (February 2021): Lumpy Durable Consumption Demand and the Limited Ammunition of Monetary Policy by McKay, WielandThe prevailing neo-Wicksellian view holds that the central bank's objective is to track the natural rate of interest \(_r_ \*\), which itself is largely exogenous to monetary policy. We challenge this view using a fixed-cost model of durable consumption demand, in which expansionary monetary policy prompts households to accelerate purchases of durable goods. This yields an intertemporal trade-off in aggregate demand as encouraging households to increase durable holdings today leaves fewer households acquiring durables going forward. Interest rates must be kept low to support demand going forward, so accommodative monetary policy today reduces _r_ * in the future. We show that this mechanism is quantitatively important in explaining the persistently low level of real interest rates and _r_ * after the Great Recession.<br/>Tue, 16 Feb 2021 00:00:00 -0600{AAA97164-8675-4F4E-8B55-EFFBB55FA254}https://www.minneapolisfed.org/research/staff-reports/star-wars-at-central-banksStaff report 620 (February 2021): Star Wars at Central Banks by Bank, Fitchett, Gorajek, Malin, StaibWe investigate the credibility of central bank research by searching for traces of researcher bias, which is a tendency to use undisclosed analytical procedures that raise measured levels of statistical significance (stars) in artificial ways. To conduct our search, we compile a new dataset and borrow 2 bias-detection methods from the literature: the p-curve and z-curve. The results are mixed. The p-curve shows no traces of researcher bias but has a high propensity to produce false negatives. The z-curve shows some traces of researcher bias but requires strong assumptions. We examine those assumptions and challenge their merit. At this point, all that is clear is that central banks produce results with patterns different from those in top economic journals, there being less bunching around the 5 per cent threshold of statistical significance.<br/>Thu, 11 Feb 2021 00:00:00 -0600{FEF16D40-A0FF-490A-9C75-7A5FB7E46FAC}https://www.minneapolisfed.org/research/staff-reports/online-appendix-star-wars-at-central-banksStaff report 621 (February 2021): Online Appendix: Star Wars at Central Banks by Bank, Fitchett, Gorajek, Malin, StaibThis online appendix accompanies [Staff Report 620: Star Wars at Central Banks](https://doi.org/10.21034/sr.620).<br/>Thu, 11 Feb 2021 00:00:00 -0600{CE15FE71-66C6-4EA8-A62A-6680EC1FCB4B}https://www.minneapolisfed.org/research/staff-reports/behavior-and-the-transmission-of-covid19Staff report 618 (February 2021): Behavior and the Transmission of COVID-19 by Atkeson, Kopecky, ZhaWe show that a simple model of COVID-19 that incorporates feedback from disease prevalence to disease transmission through an endogenous response of human behavior does a remarkable job fitting the main features of the data on the growth rates of daily deaths observed across a large number countries and states of the United States from March to November of 2020. This finding, however, suggests a new empirical puzzle. Using an accounting procedure akin to that used for Business Cycle Accounting as in Chari et al. (2007), we show that when the parameters of the behavioral response of transmission to disease prevalence are estimated from the early phase of the epidemic, very large wedges that shift disease transmission rates holding disease prevalence fixed are required both across regions and within a region over time for the model to match the data on deaths from COVID-19 as an equilibrium outcome exactly. We show that these wedges correspond to large shifts in model forecasts for the long-run attack rate of COVID-19 both across locations and over time. Future research should focus on understanding the sources in these wedges in the relationship between disease prevalence and disease transmission.<br/>Thu, 04 Feb 2021 00:00:00 -0600{010F92B0-285C-48D0-BE76-998FC50C388C}https://www.minneapolisfed.org/research/staff-reports/a-parsimonious-behavioral-seir-model-of-the-2020-covid-epidemic-in-the-united-states-and-the-united-kingdomStaff report 619 (February 2021): A Parsimonious Behavioral SEIR Model of the 2020 COVID Epidemic in the United States and the United Kingdom by AtkesonI present a behavioral epidemiological model of the evolution of the COVID epidemic in the United States and the United Kingdom over the past 12 months. The model includes the introduction of a new, more contagious variant in the UK in early fall and the US in mid December. The model is behavioral in that activity, and thus transmission, responds endogenously to the daily death rate. I show that with only seasonal variation in the transmission rate and pandemic fatigue modeled as a one-time reduction in the semi-elasticity of the transmission rate to the daily death rate late in the year, the model can reproduce the evolution of daily and cumulative COVID deaths in the both countries from Feb 15, 2020 to the present remarkably well. I find that most of the end-of-year surge in deaths in both the US and the UK was generated by pandemic fatigue and not the new variant of the virus. I then generate forecasts for the evolution of the epidemic over the next two years with continuing seasonality, pandemic fatigue, and spread of the new variant.<br/>Thu, 04 Feb 2021 00:00:00 -0600{12AAE11B-43BA-4F70-9CFE-9A8E683D432A}https://www.minneapolisfed.org/research/staff-reports/sweat-equity-in-us-private-businessStaff report 560 (January 2021): Sweat Equity in U.S. Private Business by Bhandari, McGrattanWe develop a theory of _sweat equity_—the value of business owners' time and expenses to build customer bases, client lists, and other intangible assets. We discipline the theory using data from U.S. national accounts, business censuses, and brokered sales to estimate a value for sweat equity in the private business sector equal to 1.2 times U.S. GDP, which is about the same magnitude as the value of fixed assets in use in these businesses. For a typical owner, 26 percent of the sweat equity is transferable through inheritance or sale. The equity values are positively correlated with business incomes and standard measures of markups based on accounting data, but not with owners' financial assets or standard measures of business total factor productivity. We use our theory to show that abstracting from sweat activity leads to a significant understatement of the impacts of lowering business income tax rates on private business activity for both the extensive and intensive margins. Despite finding larger responses, our model's implied tax elasticities of establishments and owner hours are in line with empirical estimates in the public finance literature. Allowing for financial constraints and superstar firms does not overturn our main findings.<br/>Tue, 05 Jan 2021 00:00:00 -0600{65DE62AD-CB4B-46DF-935C-D52E13EDBC81}https://www.minneapolisfed.org/research/staff-reports/credit-frictions-in-the-great-recessionStaff report 617 (December 2020): Credit Frictions in the Great Recession by Kehoe, Lopez, Midrigan, PastorinoAlthough a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the firm-side credit channel. We then evaluate the relative benefits of a fixed-sized transfer to households and to firms that improves each group's access to credit. We find that the effects of such a transfer on employment are substantially larger when the transfer targets households rather than firms. Hence, we provide theoretical and quantitative support to the view that the employment decline during the Great Recession would have been less severe if instead of focusing on easing firms' access to credit, the government had expended an equal amount of resources to alleviate households' credit constraints.<br/>Tue, 15 Dec 2020 00:00:00 -0600{C4099D51-55AE-4AE3-82BF-82FCA0AB9E14}https://www.minneapolisfed.org/research/staff-reports/economic-benefits-of-covid-19-screening-testsStaff Report 616 (November 2020): Economic Benefits of COVID-19 Screening Tests by Andrew Atkeson, Michael Droste, Michael J. Mina, and James H. StockWe assess the economic value of screening testing programs as a policy response to the ongoing COVID-19 pandemic. We find that the fiscal, macroeconomic, and health benefits of rapid SARS-CoV-2 screening testing programs far exceed their costs, with the ratio of economic benefits to costs typically in the range of 2-15 (depending on program details), not counting the monetized value of lives saved. Unless the screening test is highly specific, however, the signal value of the screening test alone is low, leading to concerns about adherence. Confirmatory testing increases the net economic benefits of screening tests by reducing the number of healthy workers in quarantine and by increasing adherence to quarantine measures. The analysis is undertaken using a behavioral SIR model for the United States with 5 age groups, 66 economic sectors, screening and diagnostic testing, and partial adherence to instructions to quarantine or to isolate.<br/>Mon, 09 Nov 2020 00:00:00 -0600