Raya Munte, Albert2022-09-262022-09-262022-07https://hdl.handle.net/11299/241715University of Minnesota Ph.D. dissertation. July 2022. Major: Economics. Advisors: Manuel Amador, Timothy Kehoe. 1 computer file (PDF); vii, 83 pages.This dissertation consists of three chapters. In chapter 1, I study and document a positive and strong relationship between households’ permanent income and their tendency to accumulate a disproportionate amount of wealth. I do so by estimating a structural income process using detailed household survey panel data from the Bank of Spain. In chapter 2, I investigate why high permanent income households tend to accumulate and save relatively more. To accomplish this I build a standard partial equilibrium life-cycle model of consumption and savings, augmented with preference heterogeneity, a realistic public pension system, transmission of wealth from parents to children in the form of bequests and also transmission of ability. I show all these features generate non-homothetic behavior. Next, I calibrate the model for Spain and use it to decompose the quantitative contribution of each non-homothetic source. I find that the pension system and the introduction of bequests bring empirical and model moments very close. In particular, the pension system accounts for at least 60% of heterogeneity in wealth-to-income ratios. The intuition is that the public pension system generates income replacement ratios that are low and motivates high income households to complement their pension by saving more over the life cycle. In chapter 3, I study the role of incomplete information as a possible explanation to rationalize the lack of fiscal adjustment that triggered a debt accumulation process during and after the Great Recession in many European countries. In particular, I build a simple two-period model of government debt issuance and default in which i) the decision maker does not observe the shocks hitting the economy, ii) policy is assumed to depend on aggregate labor, and iii) policy and labor are endogenous and determined simultaneously. In this setup, I show that optimal fiscal reaction features endogenous little fiscal adjustment as well as larger debt accumulation and default probabilities.enThesis or Dissertation