Uninsured Risk, Stagnation, and Fiscal Policy

31 Pages Posted: 15 Feb 2016 Last revised: 30 Aug 2017

See all articles by R. Braun

R. Braun

Federal Reserve Bank of Atlanta

Tomoyuki Nakajima

University of Tokyo

Date Written: 2016-02-01


Japan is in the midst of a protracted spell of depressed economic activity. Japan's economic stagnation has occurred against a background of rising earnings risk. Occupational stability is falling as routine occupations disappear and implicit lifetime employment guarantees are gradually disappearing. At the same time, earnings in some high-skilled occupations have continued to grow. The resulting polarization in earnings has also been accompanied by an increase in wealth inequality. We develop a framework that relates these observations. In our model, an increase in uninsured earnings risk depresses output and increases wealth inequality. We then analyze the efficacy of alternative fiscal measures in terms of their ability to increase economic activity, reduce wealth inequality, and improve welfare. We find that a lower tax rate on capital achieves all of these objectives.

Keywords: economic stagnation, wage polarization, wealth inequality

JEL Classification: D31, E13, E16

Suggested Citation

Braun, R. and Nakajima, Tomoyuki, Uninsured Risk, Stagnation, and Fiscal Policy (2016-02-01). FRB Atlanta Working Paper No. 2016-4, Available at SSRN: https://ssrn.com/abstract=2732007

R. Braun (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Tomoyuki Nakajima

University of Tokyo ( email )

Yayoi 1-1-1
Tokyo, Tokyo 113-8657

HOME PAGE: http://https://sites.google.com/view/tomoyukinakajima/home

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