Essays on two contemporary topics through an intergenerational lens : smart technologies and economic sanctions

Abstract

This thesis centers its scope on the macroeconomic implications of two contemporary issues affecting welfare: the arrival of smart technologies and global control policies as sanctions. The key element that integrates these topics into the thesis is the intergenerational perspective. The thesis employs overlapping generations (OLG) models to study how smart technologies could modify long-term economic conditions and how fiscal policies are to be thought as a global matter rather than isolated decisions. The first chapter addresses the circumstances under which smart technologies may drive people out of well-compensated work. The Chapter uses a two-period OLG model comprising two type of workers, high and low-tech, and two goods –a capital intensive one and a labor intensive one. Automation, characterized as legacy code, combines with capital to give birth to a smart machine: a robot. In turn, as automation capacity grows these robots leave future workers– both high and low-tech– worse off. The lower code relative to capital increases the high-tech worker’s compensation, savings, and capital formation. However, as code accumulates, demand for high-tech labor falls, limiting younger generations’ savings and investments. Similarly, the second chapter seeks to answer whether robots raise or lower economic well-being. The setup is once again a two-period OLG. However, in this economy two goods are produced and consumed, but only one is fully automatable. Robots may be harmful except when robotic productivity is high enough that induces a virtuous circle of rising wages, savings, and output, producing the open-ended constant growth of an AK model. Additionally, a government transfer can turn an increase in robotic productivity into a long-term welfare improvement for future generations. Finally, the third chapter develops a large-scale multi-country OLG model to address the fiscal implications of global sanctions to a country –namely Russia. The model is uniquely suited to understanding the long-term effect of different trade and fiscal regimes. The sanctioned country responds either by seizing foreign assets, or imposing capital controls, policies that might hurt the sanctioning countries. In all scenarios, except for the most benign, all generations alive at the time are made worse off in the sanctioned country.