Charlotte Paulie defends her thesis "Essays on the Distribution of Production, Prices and Wealth".

The dissertation consists of three independent essays in macroeconomics. The common focus is how macroeconomics is affected by changes in distributions (production and wealth) as a result of changed economic conditions. The first two chapters deal with the allocation of production between companies and the effect that the allocation has on the aggregate economy. The last chapter studies how the distribution of wealth is affected by changes in the tax system.

Discussant is Professor Timo Boppart, IIES, Stockholm University and the Grading committee members are Professor Eva Mörk, Department of Economics, Uppsala University, Professor David Domeij, Department of Economics, Stockholm School of Economics and Professor Johan Lyhagen, Department of Statistics, Uppsala University.

Advisors are Professor Mikael Carlsson, Department of Economics, Uppsala University and Assistant Professor Erik Öberg, Department of Economics, Uppsala University.

Abstract

Essay I: Using detailed Swedish micro data on prices and costs, this paper documents a decrease in the dispersion of changes in prices and markups following the introduction of an official inflation target of 2 percent. Using a structural model to decompose the change in the price-change distribution by potential explanatory factors, about 63 percent of the decrease in the price-change dispersion can be attributed to a decrease in the cross-sectional variance of inflation expectations. The lower dispersion of inflation expectations results in a lower markup dispersion and a welfare gain equivalent to a 0.79 percent increase in consumption.

Essay II: Does increasing product-market competition from foreign firms affect domestic labor shares? By combining detailed Swedish firm-level data with an instrumental variable design, I show that an increase in import penetration caused by increased global competition results in a decrease in domestic industry-level labor shares. The decrease comes both from a reallocation of firms' market shares and a fall in labor shares at the firm level. The analysis shows that the negative effect of competition on firm-level labor shares is driven by an increase in productivity that is not met by a corresponding increase in compensation to labor. I use these findings to calibrate a heterogeneous-firm model where domestic and foreign firms compete on the domestic product market. The calibrated model predicts that an increase in foreign competition corresponding to a one standard deviation increase in import penetration results in a 1.12 percentage point increase in welfare.

Essay III (with Markus Ridder and Kerstin Westergren): For the past several decades, wealth inequality has increased in many countries. Do changes in the tax system contribute to these trends? Using a quantitative model, we examine the effect on wealth inequality of changing from a comprehensive to a dual tax system. We start with a standard open-economy incomplete-markets model, to which we add an entrepreneurial sector. The entrepreneurs in the model exploit the duality of the tax system after the reform by declaring income as capital (taxed at a flat rate) rather than labor income (taxed progressively). The model is parameterized to match the characteristics of the Swedish economy under dual taxation. In contrast to previous studies, we estimate the parameters of the stochastic process for entrepreneurial income using micro-data observations. We find that the introduction of a dual tax system increases wealth inequality and that the possibility of the entrepreneurs to declare income as capital plays an important role for this result. We also find that the level of aggregate capital and the share of entrepreneurs is higher in an economy with a dual tax system.

Download the thesis from Diva here

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