Essays on the Effects of Structural Reforms
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This dissertation studies the effects of structural reforms. In Chapter 1, I analyze the distributional consequences of structural reforms based on a theoretical model, for to my best knowledge, existing studies on the issue are empirical ones only. I build up a tractable framework, which measures the impacts of the reforms on inequality by the Gini coefficient and the labor share in GDP that are determined endogenously. The framework incorporates endogenous firm entry as in Bilbiie, Ghironi, and Melitz (2012), labor market friction as in Mortensen and Pissarides (1994), and translog preferences as in Feenstra (2003). And it is extended with simple heterogeneity in households by distinguishing them between the household of workers and that of entrepreneurs. The main results of the chapter are as follows. First, product market reform represented by the reduction of the regulatory entry costs improves income equality in any measures. As the employment rate goes up after the reform, the overall income concentration falls, and it causes the Gini coefficient to decline. Also, the labor share rises by the combined effects of the increase in overall wage and the decrease in markup, following the influx of new entrants. Second, less strict employment protection represented by lowering the costs related to firing employees rather lowers the Gini coefficient more than the product market reform does, though this reform has little negative impact on the labor share. Third, less generous unemployment benefits certainly worsen inequality in any measures. It is because the reform directly widens the income gap between the unemployed and the employed, and limits wage increase since the lower replacement rate reduces workers' outside option. Chapter 2 investigates the effects of product market reform in granular economies. We set up a baseline model by modifying the Ghironi and Melitz (2005) model, and later extend it with idiosyncratic shocks. First, we find out that the overall effects of the structural reforms are heterogeneous according to the degrees of granularity of countries. The reforms in granular economies are likely to be associated with larger long-run gain but with bigger short-run pain, compared to the reforms in non-granular economies. Second, the product market reform also affects the degree of granularity by changing the cutoff productivity and the number of operating firms. In the immediate aftermath of the reform, the economy rather becomes more granular than before as the number of operating firms decreases due to the jump of cutoff productivity caused by fierce competition. However, the number of firms gradually recovers, making the economy less granular over time. Third, in the extended model with idiosyncratic shocks, we find out that aggregate volatility temporarily increases, while it eventually decreases in the long-run. Also, the magnitude of impacts of the reforms on aggregate volatility is larger in granular economies.
- Economics