Date of Award

5-5-2025

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

Information, Production Networks and Optimal Taxation: This paper studies optimal taxation in an economy with information frictions and a production network across industries. I show that when all industries share the same information structure, production efficiency holds and optimal policy features no taxes on intermediate goods. Deviating from this benchmark, I characterize the optimal policy when information structure is heterogeneous across industries: The government optimally imposes higher revenue taxes on industries during economic downturns if: (i) these industries exhibit greater information rigidity, (ii) their downstream industries display less information rigidity, and (iii) their input goods are also utilized by less informed industries. I quantify information heterogeneity across industries with a standard text analysis method. Industries display varying levels of attention to economic outcomes, which are correlated with their exposure to business cycle shocks. The calibrated model indicates that, in response to the COVID-19 shock, the optimal taxation leads to a welfare increase of 0.7% for the U.S. and 1.23% for China in terms of consumption, compared to the tax policy that ignores the heterogeneity in information structure. Liquidity trap revisited: when wages are sticky: This paper revisits the New Keynesian model in a liquidity trap when the government lacks commitment, showing that incorporating stickywages restores continuity of the equilibrium path with price flexibility λp = ∞ and λp → ∞ and resolves counterintuitive implications such as the explosive effects of forward guidance and fiscal policy. In the standard New Keynesian model, greater price flexibility deepens recessions and intensifies deflation during a liquidity trap. As prices become more flexible, the effects of forward guidance and fiscal policy increase explosively, ultimately diverging to infinity. With sticky wages, these limit puzzles disappear. The economy follows a stable path, and policy interventions have moderate and realistic effects during a liquidity trap. Price flexibility is beneficial, while wage flexibility can be beneficial or harmful depending on whether the zero lower bound (ZLB) constraint is binding. Industry Dynamics and Economic Growth with Labor Market Frictions: We develop a multi-industry growth model with labor market frictions to explore the interaction between such frictions and industrial upgrading and economic growth. Experienced workers in an old industry lose their industry-specific expertise when they are relocated to a more capital-intensive industry and suffer a mismatch. These workers gradually become experienced through on-the-job learning, till the sunrise industry itself becomes a sunset one and workers have to move to an even more capital-intensive industry. We analytically characterize the properties of dynamic labor market performance, the life-cycle dynamics of each of the underlying infinite industries, and the aggregate growth rates. We show that, without any exogenous aggregate shocks, the aggregate unemployment rate exhibits recurrent cycles along with the perpetual structural change driven by capital accumulation.

Language

English (en)

Chair and Committee

Yongseok Shin

Committee Members

Gaetano Antinolfi; Ping Wang; Yili Chien; Yu-Ting Chiang

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