MAREN FROEMEL (PH.D., EUROPEAN UNIVERSITY INSTITUTE)
Maren Froemel works on the individual and aggregate implications of economic inequality and the design and analysis of macroeconomic policies, in particular fiscal policy. In her research, she uses quantitative dynamic general equilibrium models featuring extensive heterogeneity among households, to evaluate fiscal interventions in light of their macroeconomic and distributional effects.
Maren has focused in particular on targeted transfers. In one project she analyses the multifaceted effects of tax credit policies, which have been a success in lifting families out of poverty and increased labour force participation in the U.S.. However, economic theory suggests potential counteracting effects through individual intertemporal decisions and a fall in average real wages. The results confirm the effects are sizeable – thereby reducing overall policy effectiveness and productive efficiency--, but do not offset the positive income gains from implementation of the policy for low income households. Further research is aimed at (i) understanding to which extent this effect depends on labour market conditions, which she plans to investigate both empirically and theoretically using state-level U.S. data, and (ii) understanding possible long run effects through changes in human capital investment of the target population.
A second line of her research is aimed at analysing the interactions of short run fluctuations and economic inequality. In particular, episodes of sovereign defaults in emerging markets and the recent European debt crisis have forced many governments into substantial fiscal adjustment. The important issue is how to design a mix of spending, tax, and deficit policy that stabilise both demand and the fiscal outlook. Economic inequality affects this choice both qualitatively and quantitatively. Current results suggest a trade-off between redistributing income, and the level of production, due to the contractionary effects of taxes. She is also working on evaluating the effectiveness of automatic stabilisers that are currently in place in developed and developing economies. .