Three Essays in Economics.

Abstract

In Chapter 1, I show that reservation wages of unemployed workers are rigid even though observed wages of new hires appear flexible. Unemployed workers with flexible reservation wages are more likely to become re-employed than those with rigid reservation wages, leading to composition bias in observed wages of job finders. I document in the microdata that the wages of job finders appear to respond more to labor market conditions than the wages of stayers. I present a model in which employed and unemployed workers both face downward nominal wage rigidity. The model recovers the different elasticities of observed wages to labor market conditions among stayers and finders. Nonetheless, the model implies that unobserved reservation wages of unemployed workers are nearly as rigid as those of employed workers. Therefore, nominal wage rigidity is a potentially important driver of unemployment volatility.

In Chapter 2, I use professional forecasts of the US economy to estimate the effects of fiscal policy on output, private GDP, and prices. By using professional forecasts to estimate the unanticipated changes in fiscal policy and to estimate the impulse response functions, I control for the information-set of agents. I find that government spending has an immediate one-for-one impact on output, which increases slowly over time. My estimates imply a government spending multiplier of 1.6 two years after an unanticipated change in government spending.

In Chapter 3, I measure the degree of salience of the Alternative Minimum Tax (AMT) by utilizing the well-known effects of marginal tax rates and after-tax income on charitable giving. By decomposing the changes to after-tax income and the marginal tax rate attributable to the traditional income tax and the AMT, I test the degree to which AMT taxes are predictable. Employing panel survey data to estimate several specifications of a charitable giving model, I find that small sample sizes in the income region in which AMT liability is common makes it difficult to test income and price effects separately. Several joint tests of incomplete recognition of AMT effects, however, are suggestive. Further examination with tax file data is warranted.