PhD Lunch Seminars Amsterdam

Swapnil Singh (University of Amsterdam)
Tuesday, 29 November 2016

Using the March Current Population Survey, I show that over the last two decades, married households in the United States received increasingly more public insurance against labor income risk, whereas the opposite was true for single households. To evaluate the welfare consequences of this trend, I perform a quantitative analysis. As a novel contribution, I expand the standard incomplete markets model `a la Aiyagari (1994) to include two groups of households: married and single. The model allows for changes in the marital status of households and accounts for transition dynamics between steady states. I show that the divergent trends in public insurance have a significant detrimental effect on the welfare of both married and single households. Higher public insurance crowds out the private savings of married households, thus decreasing their mean wealth. In the long run, lower wealth decreases mean consumption for married households, driving the decline in their welfare. For singles, transition dynamics play a major role. Although in response to lower public insurance they save more and can afford higher mean consumption in the new steady state, the welfare loss from lower initial consumption after the policy change offsets this welfare gain.