TWO APPLICATIONS OF STRUCTURAL CONSUMER MODELS: U.S. IMMIGRATION AND U.S. FISCAL POLICY

This dissertation consists of two essays that apply structural consumer models to study the decision-making process of economic agents. The first study examines the case of Mexican migrants to the U.S.. This study is motivated by the fact that a large share of migrants move for economic reasons. In most cases, the economic benefits of migration carry over to migrants' family members, making it critical to study migration decisions in conjunction with the remittance decisions of potential migrants. For this purpose, I develop and estimate a model of two-member households in which one member makes migration decisions based on expected wages and migration costs as well as the probability and amount of potential remittances for Mexican households. Counterfactual exercises on the estimated model reveal that remittances are an integral part of household decision making, and a model without remittances cannot capture the data well. I show that an increase in migration costs would decrease the average migration probability and increase the average remittance probability, conditional on migrating. This response is the most pronounced for the least-educated migrants. The second study, which is joint work with Xavier Bautista, Steven Craig, Yuhsin Hsu, Bent S{\o}rensen and Priyam Verma, examines the budgetary behavior of U.S. state governments and examines its similarities to that of credit-constrained consumers. U.S. state governments are subject to balanced budget rules and most have ``rainy day funds (RDFs).'' We show that RDFs are a side-show and the extensive discussion of these is mainly theater because state governments smooth expenditures using other cash accounts which are much larger than the rainy day funds. We argue that state governments save adequately by showing that state governments' expenditure smoothing is well described by a buffer-stock model of forward-looking consumers (Caroll(1992,199)) with exogenous income (revenue). We estimate the parameters of the model using Indirect Inference and find that state governments are risk-averse and impatient, with estimated parameters similar to those found for consumers.