We study the quantitative impact of a rise in the minimum wage on macroeconomic outcomes such as employment, the stock of capital and the distribution of wages. Our modeling framework is the large-firm search and matching model. Our comparative statics are in line with previous empirical findings: a moderate increase in the minimum wage barely affects employment, while it compresses the wage distribution and generates positive spillovers on higher wages. The model also predicts an increase in the stock of capital. Next, we perform the policy experiment of introducing a 10 dollar minimum wage. Our results suggest large positive effects on capital (4.0%) and output (1.8%), with a decrease in employment by 2.8%. The introduction of a 9 dollar * An earlier version of this paper circulated under the title "The impact of the minimum wage on capital accumulation and employment in a large-firm framework". We would like to thank Ayse Imrohoroglu (the editor) and a referee for their comments, which greatly improved the previous version of this draft. We also grateful to Felipe Balmaceda, Wouter den Haan, Markus Poschke, Toshi Mukoyama, Shouyong Shi, Lucciano Villacorta and Etienne Wasmer for useful comments, as well as participants at the Winter Econometric Society Meeting in Los Angeles, the European Economic Association Meeting in Toulouse, the CEF conference in Vancouver, the Econometric Society conference in Sao Paolo and EALE conference in Bonn, the SMAUG workshop, and seminar participants at Banque de France, Central Bank of Chile, UDP, USACH, PUC-Chile and CEA. We acknowledge funding from the Anillo in Social Sciences and Humanities (project SOC 1402 on "Search models: implications for markets, social interactions and public policy"). Alexandre Janiak also thanks Fondecyt (project no 1151053). All errors are our own. minimum wage would instead produce similar effects on capital accumulation without harming employment.

We introduce limited commitment into a standard optimal fiscal policy model in small open economies. We consider the problem of a benevolent government that signs a risk-sharing contract with the rest of the world, and that has to choose optimally distortionary taxes on labor income, domestic debt and international debt. Both the home country and the rest of the world may have limited commitment, which means that they can leave the contract if they find it convenient. The contract is designed so that, at any point in time, neither party has incentives to exit. We define a small open emerging economy as one where the limited commitment problem is active in equilibrium. Conversely, a small open developed economy is an economy with full commitment. Our model is able to rationalize two stylized facts about fiscal policy in emerging economies: i) the volatility of tax revenues over GDP is higher in emerging economies than in developed ones; ii) the volatility of tax revenues over GDP is positively correlated with sovereign default risk.