Growth and bubbles: Investing in human capital versus having childrenJournal articleXavier Raurich and Thomas Seegmuller, Journal of Mathematical Economics, Volume 82, pp. 150-159, 2019

As it is documented, households’ investment in their own education (human capital) is negatively related to the number of children individuals will have and requires some loans to be financed. We show that this contributes to explain episodes of bubbles associated to higher growth rates. This conclusion is obtained in an overlapping generations model where agents choose to invest in their own education and decide their number of children. A bubble is a liquid asset that can be used to finance either education or the cost of rearing children. The time cost of rearing children plays a key role in the analysis. If the time cost per child is sufficiently high, households have only a small number of children. Then, the bubble has a crowding-in effect because it is used to provide loans to finance investments in education. On the contrary, if the time cost per child is low enough, households have a large number of children. Then, the bubble is mainly used to finance the total cost of rearing children and has a crowding-out effect on investment. Therefore, the new mechanism we highlight shows that a bubble enhances growth if the economy is characterized by a high rearing time cost per child.

The love for children hypothesis and the multiplicity of fertility ratesJournal articlePaolo Melindi-Ghidi and Thomas Seegmuller, Journal of Mathematical Economics, Volume 83, Issue C, pp. 89-100, 2019

As illustrated by some French departments, how can we explain the existence of equilibria with different fertility and growth rates in economies with the same fundamentals, preferences, technologies and initial conditions? To answer this question we develop an endogenous growth model with altruism and love for children. We show that independently from the type of altruism, a multiplicity of equilibria might emerge if the degree of love for children is high enough. We refer to this condition as the love for children hypothesis. Then, the fertility rate is determined by expectations on the future growth rate and the dynamics are not path-dependent. Our model is able to reproduce different fertility behaviours in a context of completed demographic transition independently from fundamentals, preferences, technologies and initial conditions.

Bubble on real estate: the role of altruism and fiscal policyJournal articleLise Clain-Chamosset-Yvrard and Thomas Seegmuller, Studies in Nonlinear Dynamics & Econometrics, Volume 23, Issue 4, pp. 20190020, 2019

In this paper, we are interested in the interplay between real estate bubble, aggregate capital accumulation and taxation in an overlapping generations economy with altruistic households. We consider a three-period overlapping generations model with three key elements: altruism, portfolio choice, and financial market imperfections. Households realise different investment decisions in terms of asset at different periods of life, face a binding borrowing constraint and leave bequests to their children. We show that altruism plays a key role on the existence of a productive real estate bubble, i.e. a bubble in real estate raising physical capital stock and aggregate output. The key mechanism relies on the fact that a real estate bubble raises income of retired households. Because of higher bequests, there children are able to invest more in productive capital. Introducing fiscal policy, we show that raising real estate taxation dampens capital accumulation.

Environmental Tax Reform under Debt ConstraintJournal articleMouez Fodha, Thomas Seegmuller and Hiroaki Yamagami, Annals of Economics and Statistics, Issue 129, pp. 33-52, 2018

This article analyzes the impacts of Environmental Tax Reform (ETR) when the government is constrained not to increase the public debt-to-output ratio. We consider an overlapping generations model with pollution. Public spending for pollution abatement are financed by tax revenues and public debt. We show that keeping constant the public debt-output ratio is not an obstacle to attain a double dividend, i.e. an increase of both (i) environmental quality and (ii) aggregate consumption. First, if the capital stock is low and the pollution abatement is large enough, a successful ETR consists in a rise of the environmental tax, compensated by a decrease of the income tax. Secondly, we show that the environmental tax revenues may help reduce the public debt-output ratio. We give conditions (on the initial level of the environmental tax and the debt-output ratio) such that an increase of the environmental tax, budget-balanced by a decrease of the debt-output ratio may also achieve a double dividend. We conclude that public debt crisis should not compromise ETR, instead, environmental tax revenues could be part of the solution. JEL: Q5, H23, H63 / KEY WORDS: Environmental Tax Reform, Debt, Public Emission Abatement, Double Dividend, Overlapping Generations Model

The Stabilizing Virtues of Monetary Policy on Endogenous Bubble FluctuationsBook chapterLise Clain-Chamosset-Yvrard and Thomas Seegmuller, In: Sunspots and Non-Linear Dynamics - Essays in Honor of Jean-Michel Grandmont, K. Nishimura, A. Venditti and N. C. Yannelis (Eds.), 2017, Volume 31, pp. 231-257, Springer-Verlag, 2017

We explore the stabilizing role of monetary policy on the existence of endogenous fluctuations when the economy experiences a rational bubble. Considering an overlapping generations model, expectation-driven fluctuations are explained by a portfolio choice between three assets (capital, bonds and money), credit market imperfections and a collateral effect. They occur under a positive bubble on bonds. The key mechanism relies on the existence of gaps between the returns on assets due to financial distortions. Then, we study the stabilizing role of the monetary policy. Such a policy managed by a (standard) Taylor rule has no clear stabilizing virtues.

Nonseparable preferences do not rule out aggregate instability under balanced-budget rules: a noteJournal articleNicolas Abad, Thomas Seegmuller and Alain Venditti, Macroeconomic Dynamics, Volume 21, Issue 1, pp. 259-277, 2017

We investigate the role of nonseparable preferences in the occurrence of macroeconomic instability under a balanced-budget rule where government spending is financed by a tax on labor income. Considering a one-sector neoclassical growth model with a large class of nonseparable utility functions, we find that expectations-driven fluctuations occur easily when consumption and labor are Edgeworth substitutes or weak Edgeworth complements. Under these assumptions, an intermediate range of tax rates and a sufficiently low elasticity of intertemporal substitution in consumption lead to instability.

The Cost of Pollution on Longevity, Welfare and Economic StabilityJournal articleNatacha Raffin and Thomas Seegmuller, Environmental & Resource Economics, Volume 68, Issue 3, pp. 683-704, 2017

This paper presents an overlapping generations model where pollution, private and public health expenditures are all determinants of longevity. Public expenditures, financed through labour taxation, provide both public health and abatement. We study the role of these three components of longevity on welfare and economic stability. At the steady state, we show that an appropriate fiscal policy may enhance welfare. However, when pollution is heavily harmful for longevity, the economy might experience aggregate instability or endogenous cycles. Nonetheless, a fiscal policy, which raises the share of public spending devoted to health, may display stabilizing virtues and rule out cycles. This allows us to recommend the design of the public policy that may comply with the dynamic and welfare objectives.

Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model with Many AgentsJournal articleKazuo Nishimura, Carine Nourry, Thomas Seegmuller and Alain Venditti, Macroeconomic Dynamics, Volume 20, Issue 02, pp. 504-524, 2016

We introduce public spending, financed through income taxation, into the Ramsey model with heterogeneous agents. Public spending as a source of welfare generates more complex dynamics. In contrast to previous contributions focusing on similar models but with wasteful public spending, limit cycles through Hopf bifurcation and expectation-driven fluctuations appear if the degree of capital–labor substitution is high enough to be compatible with capital income monotonicity. Moreover, unlike frameworks with a representative agent, our results do not require externalities in production and are compatible with a weakly elastic labor supply with respect to wage.

On existence and bubbles of Ramsey equilibrium with borrowing constraintsJournal articleRobert Becker, Stefano Bosi, Cuong Van and Thomas Seegmuller, Economic Theory, Volume 58, Issue 2, pp. 329-353, 2015

We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying Kakutani’s fixed-point theorem, we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey. Copyright Springer-Verlag Berlin Heidelberg 2015

On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous AgentsJournal articleKazuo Nishimura, Carine Nourry, Thomas Seegmuller and Alain Venditti, International Journal of Economic Theory, Volume 11, Issue 1, pp. 7-24, 2015

We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt.