Structural models for policy evaluation and intertemporal individual choices

This thesis consists of three papers employing a structural approach to conduct empirical analysis. The first chapter explores how shocks to wages and asset returns affect consumption and labor supply decisions of households in a life-cycle setting with two earners, housing and flexible preferences. We provide a microfoundation of the wealth effect on consumption and labor supply, and highlight the importance of family labor supply in understanding the response of households to shocks to the financial markets. The results provide evidence of non-separability between non durable consumption, housing services and hours of the two earners, and show how family labor supply is an important determinant of the response of households to shocks. The second chapter considers the role of financial literacy in the interplay between social security and households decisions using a fully structural model of consumption, portfolio choice and investment in financial literacy, where financial literacy impacts the precision of the signal about future pension benefits. We use the model to show how the introduction of investment in financial literacy helps to explain reduced form evidence about heterogeneous effects of pension reforms among households facing different earnings risks over the life-cycle. The third chapter proposes a combination of ex-ante and ex-post evaluation methods to conduct pension policy analysis. I exploit exogenous variation coming from pension reforms introduced in Italy in the nineties to validate a structural life-cycle model for the joint interplay of social security, consumption, portfolio choice and endogenous retirement. I estimate the structural parameters of the model by matching the effects of the reform on consumption, asset accumulation and participation to the financial markets estimated from actual data employing a diff-in-diff identification strategy, with the corresponding effects from simulated data. The estimated model is used to conduct welfare analysis and an ex-ante policy experiment.