Zhiming Fu
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Research Interest
  • Macroeconomics
  • Fiscal Policy
  • Market Frictions
  • Business Cycle
  • Housing Market

Research Papers 
  • Labor Supply Response to Tax Reform in a Search Model with Heterogeneous Households (job market paper)  Download paper
  •  I develop a dynamic general equilibrium model with progressive taxation, 
labor market search and
         heterogeneous households to study the impact of tax reform on labor supply and income inequality across
         education groups. Households differ in their education level and their time preference. The response of labor 
         supply to tax reform is studied both at the intensive margin (hours worked) and the extensive margins (labor force 
         participation). The quantitative results suggest that: (i) a tax reform which decreases the marginal tax rate by the 
         same magnitude of that in the Tax Reform Act of 1986 (TRA-86), has a significant  impact on households' labor 
         supply and that approximately 65 percent of the  aggregate labor supply response is along the extensive margin; 
         (ii) household labor supply response to tax reform depends on education levels. People with less education 
         respond more significantly along both the intensive and extensive margin while the response of people with
         highest education is subtle. However, the income share of the highest education group increases due to an 
         increase in capital income after tax reform. These assertions are consistent with the empirical literature studying 
         the effects of TRA-86 on labor supply. 

  • House Prices, Intermediate Inputs and Sectoral Co-movement in the Business Cycle
            In this paper, I examine the business cycle properties of the housing market in a two-sector model with

           intermediate inputs and adjustment costs for capital and housing. The quantitative results replicate three main
           features of the housing market over the business cycle. First, GDP, consumption, investment in the business
           sector, and residential investment move in the same direction over the business cycle. Second, residential
           investment is two times more volatile than the investment in the business sector. Third, I find a positive 
           correlation between house prices and residential investment—a result rarely observed in models without 
           demand side shocks. 

Researches in Progress
  • Consumption, Saving and Income Distribution with Incomplete Market and Search Frictions in the Goods Market
           This paper examines the impact of product market frictions on consumption, saving, and inequalities in income 
           and wealth. To achieve this, I introduce a frictional good, which is allocated through directed search in the 
           product market, into the incomplete market model, i.e., the Aiyagari (1994) model. Directed search distinguishes
           households by their willingness to pay which depends on the asset holdings of the households. Therefore, the
           existence of the frictional good provides households an additional incentive to save. I first prove the existence of 
           a stationary equilibrium and follow it by quantifying the impact of the frictional good on household consumption,
           savings, income distribution, and risk sharing. 

  • The Government Spending Multiplier of China during Business Cycles" (with Ziguan Zhuang)
          In this paper, we use annual aggregate data and provincial data from China to estimate the government 
         spending multiplier during business cycles. We finds that the government spending multiplier is large  We 
         examine changes in the government spending multiplier over the past 30 years. 

Researches in Chinese

  • News Shock and the Business Cycle: the Case of China" (with Ziguan Zhuang and Xiaojun Zhao) 
          This paper measures the contribution of news shock to the fluctuations in aggregate output in China. We calibrate
          the model by using China 1981-2008 annual data. The model shows that the impact of technology shock and 
          news shock on the fluctuations in aggregate output are of the same magnitude. To be specific, news shock
          explains 55 percent of the changes in the volatility of the aggregate output while technology shock accounts 
          for 45 percent of the changes. 

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