Lockdown Policies and Firms' Investments in a Two-Period Macroeconomic Model
| Název práce v češtině: | Lockdown politiky a investice firem ve dvouobdobovém makroekonomickém modelu |
|---|---|
| Název v anglickém jazyce: | Lockdown Policies and Firms' Investments in a Two-Period Macroeconomic Model |
| Akademický rok vypsání: | 2020/2021 |
| Typ práce: | bakalářská práce |
| Jazyk práce: | angličtina |
| Ústav: | Institut ekonomických studií (23-IES) |
| Vedoucí / školitel: | doc. PhDr. Martin Gregor, Ph.D. |
| Řešitel: | skrytý - zadáno vedoucím/školitelem |
| Datum přihlášení: | 29.09.2021 |
| Datum zadání: | 29.09.2021 |
| Datum a čas obhajoby: | 08.09.2022 09:00 |
| Místo konání obhajoby: | Opletalova - Opletalova 26, O314, Opletalova - místn. č. 314 |
| Datum odevzdání elektronické podoby: | 02.08.2022 |
| Datum proběhlé obhajoby: | 08.09.2022 |
| Oponenti: | Nino Buliskeria, Ph.D. |
| Kontrola URKUND: | |
| Zásady pro vypracování |
| Research question and motivation
Many lockdown policies affect companies in a similar manner as taxes that are set to be very high at the margin, be it labor, capital or output taxes; therefore, even if lockdowns are primarily regulations, we may interpret them as temporally imposed implicit steep tax schedules. Economics is traditionally interested in whether large taxes work as expected. Typically, the first concern with the effect of taxation are tax avoidance and tax evasion; in the case of lockdown policies, this is not a main concern because lockdown policies are not easy to avoid or evade, especially in the case of strict lockdowns. The second concern is about distortions to factor supply and consumption associated with taxation; for instance, labor taxation motivates to overconsumer leisure. Again, in the case of lockdowns, this is again less a concern if the aim is exactly to reduce supply of the implicitly taxed labor. An important concern that is associated with implicit lockdown taxation is tax inconsistency. Tax inconsistency arises when companies have to make irreversible investment decisions prior to the government’s decisions. The government at the policy-making stage then takes the investments as fixed, and it is sequentially rational for the government to impose a large tax on the fixed investment. However, when the companies in the sequential game anticipate that the government will impose a large tax, they underinvest. This macroeconomic issue is well known in the context of capital taxation at least since Kydland and Prescott (1980) and has been later studied in the context of other government policies, especially monetary and fiscal policies. Moser and Yarred (2021, forthcoming in Review of Economic Dynamics) recently analyzed tax inconsistency in a general infinite-horizon model of a pandemic-hit economy. Tax inconsistency arises because firms make irreversible investments into intermediate inputs (e.g., spending related to personnel, inventory, rent, overheads, marketing). The government’s lockdown policy is introduced as a cap on labor supply. Labor and intermediate inputs are complements. The pandemic evolves according to an epidemiological SIRD model; i.e., the infection spreads depending on the shares of susceptible individuals (which depends on labor supply), contagious individuals and recovered individuals. They show that the optimal government’s policy is not time-consistent, and that the government may benefit from limiting future lockdown policy discretion. They also provide a calibration of the model. Contribution This thesis will build on Moser and Yarred (2021), but its aims are more limited. The first aim is to build a simple model of lockdown policy inconsistency that also uses firms’ prior investment choices, but only in a two-period model. The ultimate goal is to construct a simple model of strategic interaction between the government and firms that can be presented to undergraduate students interested in intermediate-level macroeconomics and intermediate-level game theory. The aim is to give qualitative predictions based on comparative statics of the model. Also, the model will illustrate that the beneficial effect of lockdown rules is not only in the reduction of policy uncertainty, but also in the improvement of dynamic inconsistency in lockdown policies. The second aim is to look into recent economics papers on the interactions between companies and governments in the context of pandemics. In this literature, tax inconsistency is only one among many channels through which companies and governments interact. More precisely, the thesis will collect arguments why government lockdown policies could be endogenous to the governments through the decisions of the firms. Understanding endogeneity in lockdown policies is important especially for understanding why countries with similar fundamentals may adopt different policies. Methodology The thesis will be predominantly theoretical. In addition, to motivates the thesis, it will collect evidence on time inconsistency of lockdown policies in the Czech context, using differences between announcements and policies in Fall 2020 and Spring 2021. |
| Seznam odborné literatury |
| Alvarez, Fernando E., David Argente, and Francesco Lippi, “A Simple Planning Problem for COVID-19 Lockdown,” NBER Working Paper No. 26981, 2020.
Eichenbaum, Martin S., Sergio Rebelo, and Mathias Trabandt, “The Macroeconomics of Epidemics,” NBER Working Paper No. 26882, 2020. Ferguson, Neil M., Daniel Laydon, Gemma Nedjati-Gilani, Natsuko Imai, Kylie Ainslie, Marc Baguelin, Sangeeta Bhatia, Adhiratha Boonyasiri, Zulma Cucunubá, Gina Cuomo-Dannenburg, Amy Dighe, Ilaria Dorigatti, Han Fu, Katy Gaythorpe, Will Green, Arran Hamlet, Wes Hinsley, Lucy C. Okell, Sabine van Elsland, Hayley Thompson, Robert Verity, Erik Volz, Haowei Wang, Yuanrong Wang, Patrick G. T. Walker, Caroline Walters, Peter Winskill, Charles Whittaker, Christl A. Donnelly, Steven Riley, and Azra C. Ghani, “Impact of Non-Pharmaceutical Interventions (NPIs) to Reduce COVID-19 Mortality and Healthcare Demand,” Working Paper, 2020. Klein, Paul, Per Krusell, and José-Víctor Ríos-Rull, “Time-Consistent Public Policy,” Review of Economic Studies, 2008, 75 (3), 789–808. Moser, Christian and Yared, Pierre, “Pandemic Lockdown: The Role of Government Commitment”, Review of Economic Dynamics, 2021, forthcoming. Persson, Torsten and Tabellini, Guido, “Political Economics: Explaining Economic Policy”, vol. 1, 1 ed., The MIT Press, 2002, Chapters 11-12. |
| Předběžná náplň práce |
| Outline
1) Introduction: motivation, possible links between lockdown policy decision-making and macroeconomics, thesis objectives 2) Model: construction of a two-period model based on Moser and Yarred (2021) in three variants: with commitment, without commitment, and intermediate cases with a limited commitment 3) Robustness: discussion of models’ results to alternative assumptions 4) Endogenity of policies: discussion of additional possible interactions between governments and companies (on top of tax inconsistency) that generate feedback loops between lockdown policies and firms‘ investments 5) Concluding remarks: summary and recommendations for future research |
| Předběžná náplň práce v anglickém jazyce |
| Outline
1) Introduction: motivation, possible links between lockdown policy decision-making and macroeconomics, thesis objectives 2) Model: construction of a two-period model based on Moser and Yarred (2021) in three variants: with commitment, without commitment, and intermediate cases with a limited commitment 3) Robustness: discussion of models’ results to alternative assumptions 4) Endogenity of policies: discussion of additional possible interactions between governments and companies (on top of tax inconsistency) that generate feedback loops between lockdown policies and firms‘ investments 5) Concluding remarks: summary and recommendations for future research |