This paper investigates the long-run nexus between wealth inequality and aggregate output using a DSGE model in which wealth inequality endogenously affects individual entrepreneurship incentives, thereby influencing aggregate output. Our model passes the indirect inference test against the UK data from 1870 to 2015. We find that shocks to aggregate TFP, entrepreneurial barriers, government grant support and general government spending played significant roles in shaping historical inequality dynamics in the UK. Directly removing entrepreneurial barriers or indirectly providing government grant support to the private sector such as through inclusive loan subsidies are effective means of reducing inequality and stimulating output growth.

Over a thousand years, military employment rises, peaks, and then falls. I argue that rising military shares were driven by structural change out of agriculture, and the recent declines are driven by substitution from soldiers toward military goods. I document evidence for this substitution effect and introduce a model of growth and warfare that reproduces the time series patterns of military expenditure and employment. The model also correctly predicts the cross-sectional patterns, and that military employment and expenditure shares are decreasing in income during wars. Finally, I show that faster economic growth can reduce military expenditure in the long run.

This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that determine the retirement decision of the elderly. We then examine analytically as well as numerically the long-run impact of labor participation of the elderly on capital accumulation and income distribution.

Classic accounts of the English industrial revolution present a long period of stagnation followed by a fast take-off. However, recent findings of slow but steady per capita economic growth suggest that this is a historically inaccurate portrait of early modern England. This growth pattern was in part driven by specialization and structural change accompanied by an increase in market participation at both the intensive and extensive levels. These, I argue, were supported by the gradual increase in money supply made possible by the importation of precious metals from America. They enabled a substantial increase in the monetization and liquidity levels of the economy, hence decreasing transaction costs, increasing market thickness, changing the relative incentive for participating in the market and allowing agglomeration economies to arise. By making trade with Asia possible, precious metals also induced demand for new desirable goods, which in turn encouraged market participation. Finally, the increased monetization and market participation made tax collection easier. This helped the government to build up fiscal capacity and as a consequence to provide for public goods. The structural change and increased market participation that ensued paved the way for modernization.

The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility, the one by Barro and Becker (1989), and the one inspired by Caldwell and developed by Boldrin and Jones (2002). In the Barro and Becker model parents have children because they perceive their children’s lives as a continuation of their own. In the Boldrin and Jones’ framework parents procreate because the children care about their old parents’ utility, and thus provide them with old age transfers. The effect of increases in government provided pensions on fertility in the Barro and Becker model is very small, and inconsistent with the empirical findings. The effect on fertility in the Boldrin and Jones model is sizeable and accounts for between 55 and 65% of the observed Europe–US fertility differences both across countries and across time and over 80% of the observed variation seen in a broad cross section of countries. Another key factor affecting fertility the Boldrin and Jones model is the access to capital markets, which can account for the other half of the observed change in fertility in developed countries over the last 70 years.

Nous introduisons le concept d'empreinte carbone dans un modèle d'offre globale et demande globale avec formation imparfaitement concurrentielle des prix et salaires et en examinons les propriétés de l'équilibre en présence d'une politique climatique. Nous étudions deux instruments possibles de cette politique, une taxe carbone ou un quota de permis de pollution. Nous montrons qu'à court terme, la politique climatique (ou son durcissement) constitue à la fois un choc d'offre globale négatif et, ceteris paribus, un choc de demande globale positif. Elle provoque donc des effets inflationnistes mais a un impact ambigu sur l'activité économique, l'emploi et le chômage. Ce n'est que dans une économie avec des ridigités nominales suffisantes que la politique climatique stimulera -sous certaines conditions- l'activité à court terme. Dans tous les cas de figure, elle pèsera négativement sur les salaires réels.

Nous étudions encore les interactions entre la politique climatique et les politiques macroéconomiques traditionnelles de demande (stimulus budgétaire ou monétaire) et d'offre (baisse des cotisations sociales). Les effets multiplicateurs de ces politiques sont influencés par l'existence d'une politique climatique et diffèrent selon l'intrument choisi (taxe ou permis).

Nous montrons les conditions sous lesquelles une réforme combinant durcissement de la politique climatique et baisse des cotisations sociales sur le travail peut atteindre le double objectif de réduire l'empreinte carbone de l'économie et le chômage, sans pénaliser les salaires réels des travailleurs. Une telle politique a toutefois des effets incertains sur le solde des finances publiques.

Les modèles de défauts de coordination ont pour objet le fonctionnement effectif des économies lorsque la fonction de coordination est laissée aux agents. Néanmoins, la réalisation des transactions à l'équilibre général et ses conséquences sur la détermination du niveau de l'activité et de l'emploi sont généralement passées sous silence. Dans ce texte, nous précisons le rôle joué par les externalités d'échange en étudiant la réalisation des transactions décentralisées. Nous explorons à cet effet un modèle de prospection monétaire dans lequel les externalités de participation dans les transactions conditionnent la détermination du niveau de l'activité et d'emploi d'équilibre. Les défauts de coordination sont ici liés à des prophéties auto-réalisatrices portant sur la réalisation des transactions. La technologie d'échange engendre trois équilibres inefficaces ordonnés en termes de bien-être. Nous montrons que l'utilisation de la monnaie comme intermédiaire facilite la décision de production et permet de surmonter les problèmes de coordination dans les transactions. Nous analysons l'effet d'un accroissement de la quantité de monnaie sur le niveau de l'activité. Nous discutons enfin de l'intérêt de l'approche retenue au sein de la littérature.

The evidence on U.S. investment in high-tech equipment and labor productivity in the 1990s is briefly reviewed and some implications discussed. First, capturing the role of information technologies has raised a number of important measurement issues, which have led to a change in the construction of aggregate real series in the U.S. national accounts, such as real GDP. Second, the recent period provided an important confirmation for traditional neoclassical theories of business investment and productivity. Third, there is a discussion of what type of theoretical and empirical models of economic growth are likely to prove helpful in the future.

Presidential address for the Twelfth World Congress of the International Economic Association, summarising semi-formally the author’s recent work and concerns. Uncertainty and incomplete markets breed demand volatility as well as price and wage rigidities. The conjunction of these leads to multiple, volatile supply-constrained equilibria, typically reflecting coordination failures and apt to display persistence – as documented by three supporting theorems. Specific implications are linked to the conclusions that we should take coordination failures seriously, try to obviate demand volatility and try to by-pass price and wage rigidities.