Francesco Menoncin

In this paper, we study the long-term investment and spending problem of an endowment fund that seeks to stabilise its spending around a desired target while facing uncertain financial markets and jump-driven donation income. Endowment funds are long-term institutional investors, similar to pension funds, and their joint management of investment and spending constitutes a target-based asset–liability problem of direct actuarial interest. The exogenous donation flow is modelled through a Poisson process with random, market-correlated jump sizes, asset dynamics follow a Geometric Brownian Motion, and the fund minimises a quadratic loss that penalises deviations of both consumption and wealth from dynamically evolving benchmarks. We formulate the associated continuous-time linear–quadratic stochastic control problem and solve it through the Hamilton–Jacobi–Bellman equation, obtaining closed-form optimal consumption and investment policies—an explicit Riccati solution for the wealth-curvature coefficient complemented by one-dimensional quadratures for the remaining coefficients—that balance sustainability with stability. A central ingredient is a mobile target that adjusts endogenously to incoming Poisson shocks, which prevents the pathological strategies that arise when income shocks are evaluated against a fixed benchmark. We develop the framework with endowment funds as the leading application, calibrating it on the Harvard University endowment over the period 2007–2024. The target-based formulation and the treatment of Poisson-driven income are, however, general: they can be adapted to other long-horizon institutional funds, most notably defined-contribution pension schemes and the decumulation phase, as well as to insurance asset–liability management under stochastic contribution and liability flows.

In most tax systems, returns on risk-free assets are taxed differently from risky asset returns. We study a representative-agent Lucas-tree economy in which profits are taxed at rate τ and the risk-free return at rate τr, with the agent valuing both private consumption and public expenditure. Two results emerge. First, when consumption and public expenditure enter utility additively, the profit tax τ is neutral for asset pricing: it disappears from both the equilibrium risk-free rate and the market price of risk, extending the classical result of Gordon(1985} to a continuous-time DSGE setting in which prices are determined endogenously by the stochastic discount factor. Second, interest-income taxation rescales the gross risk-free rate but never affects the market price of risk. This second separation is structural rather than parametric: it holds for any utility specification, because the risk-free asset carries no Brownian exposure, so τ enters only the drift of the stochastic discount factor and never its diffusion. The framework provides a tractable benchmark for interpreting cross-country differences in short-term rates under heterogeneous taxation of safe assets.

The article studies differential capital taxation—distinct tax rates on interest income and risky profits—in a continuous-time representative-agent general equilibrium model with complete markets. It derives closed-form expressions for the equilibrium risk-free rate and the market price of risk. A sharp and non-trivial separation result emerges: although interest-income taxation enters the agent's wealth dynamics and could in principle affect portfolio choice, it leaves equilibrium risk premia entirely unchanged. In contrast, profit taxation generally affects both equilibrium prices, except under CRRA preferences.

We study differential capital taxation-distinct rates on interest income and risky profits-in a continuous-time representative-agent general equilibrium model with complete markets, deriving closed-form expressions for the equilibrium risk-free rate and the market price of risk. A sharp separation result emerges: interest-income taxation scales the gross risk-free rate required to deliver a given after-tax return but leaves risk premia entirely unchanged, whereas profit taxation affects both equilibrium prices. Within the HARA family, the CRRA case delivers full neutrality of profit taxation with respect to both prices.

This paper re-examines the recessionary content of yield curve inversions through a multivariable cyclical framework jointly analyzing yield spreads, inflation, and the Federal Funds rate using U.S. monthly data since 1980. Cyclical components are extracted via Hodrick-Prescott detrending combined with Goertzel-Bartels spectral analysis. We introduce a measure of cycle exhaustion capturing each variable's position within its cycle. The results show that recessionary outcomes depend not on the direction of the policy cycle at inversion, but on its maturity. By distinguishing inversions that warrant a recessionary interpretation from those that do not, the framework offers a real-time diagnostic tool for monetary and macroprudential authorities, helping to mitigate the financial-stability risks that arise when yield curve signals are misread (premature credit-market repricing, tighter lending standards, and amplified volatility in bond and equity markets).

We develop a tractable model economy in which public capital improves aggregate productivity, and the taxpayers have heterogeneous evasion opportunities. By issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. The wealth share of tax evaders relates negatively to the economy’s productivity but has a hump-shaped relationship with the growth rate of aggregate capital. The fiscal policy that maximizes welfare differs from the one that maximizes tax revenues because the latter does not account for the redistribution of wealth (and risk) between compliant and evasive taxpayers.

The literature has long analysed optimal taxation policies in economies where tax evasion is widespread. Nevertheless, very little has been produced on the relationship between public debt, tax evasion, and long-term economic growth. In this article, we investigate the relationship between sovereign debt sustainability and tax evasion by computing under which conditions the debt/GDP ratio is endogenously mean reverting in the context where tax evasion may increase the public debt and public expenditure is used to finance public and merit goods. For a log utility consumer, the level of tax evasion has no effect on the mean reverting conditions while the same is not true for more general functional forms. Finally, we conclude that allowing for tax evasion is not a suitable policy to make the debt/GDP ratio stable over time, especially in low-growth economies.