This week’s seminar in the Doctoral Program in Regional Development and Economic Integration (DRIE), organized by the GAME group, is titled “Who Pays for European Industrial Policy? Heterogeneity of Wealth in a Two-Country HANK Model.” It will be led by Andrés González Rodríguez from the University of Santiago de Compostela (USC).
Contents
A second Chinese shock is transforming the global industrial landscape: China’s industrial policy, geared toward high-tech manufacturing, combined with weak Chinese domestic demand, is flooding the world with high-tech goods and shifting the balance of technological hegemony toward China. Cesa-Bianchi, Ferrero, Fornaro, and Wolf (2026) formalize this mechanism within a two-country endogenous growth framework and identify three potential Western responses: tariffs, fiscal adjustment to boost domestic savings, and innovation subsidies. Their analysis treats the Chinese savings wedge as a reduced-form preference parameter and assumes representative households on both sides, leaving the distributional consequences of the Western response on households unexamined.
This project extends its framework to a Heterogeneous-Agent New Keynesian (HANK) scenario. It follows three key contributions. First, the Chinese savings wedge is microgrounded through the idiosyncratic risk of households under incomplete markets, calibrated with Chinese microdata (CFPS, CHFS). Second, household heterogeneity is introduced on both sides of the model, generating non-degenerate distributions of wealth and consumption. The solution method follows the sequence-space Jacobian approach of Auclert, Bardóczy, Rognlie, and Straub (2021). Third, the welfare consequences of the three wealth percentile rebalancing instruments are assessed, identifying which households bear the cost and which capture the gains in each scenario.
The framework raises two substantive questions absent from the representative agent benchmark: through which channels (labor income, asset returns, relative prices) does each instrument propagate in the European wealth distribution? and whether the policy mix that maximizes welfare changes once household heterogeneity is taken into account, compared to the reference scenario with a representative agent.
The seminar will take place this Thursday, May 28, at 4:30 p.m. in the Faculty of Economics and Business.
If you cannot attend in person and would like to participate via Teams, you can request the meeting access details by emailing idega@usc.gal.
