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Handbook of Computational Economics by Kenneth L. Judd, Karl Schmedders

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Chapter 3

Analyzing Fiscal Policies in a Heterogeneous-Agent Overlapping-Generations Economy

Shinichi Nishiyamaa and Kent Smettersb,    aMacroeconomic Analysis Division, Congressional Budget Office, USA,    bWharton School of Business, University of Pennsylvania, USA,    shinichi.nishiyama@cbo.gov, smetters@wharton.upenn.edu

Abstract

The overlapping generations (OLG) life-cycle model with heterogeneous agents has become the main workhorse for evaluating the welfare and macroeconomic effects of major fiscal policy changes, including reforms to tax and social insurance systems. This chapter shows how to construct and solve a OLG model with idiosyncratic shocks, which allows for analyzing the inter- and intra-generational welfare and macroeconomic ...

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