Research

Published research

Taxes, transfers and employment in an incomplete markets model

join with Richard Rogerson. Journal of Monetary Economics. Volume 57, Issue 8, November 2010, Pages 949-958.

The consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets. The effects are contrasted with those obtained in a stand-in household model featuring no idiosyncratic shocks and complete markets. The main finding is that the impact on hours remains very large, but the welfare consequences are very different. The analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment.

Social security and retirement across the OECD

Volume 47, October 2014, Pages 300-316.

Employment to population ratios differ markedly across Organization for Economic Cooperation and Development (OECD) countries, especially for people aged over 55 years. In addition, social security features differ markedly across the OECD, particularly with respect to features such as generosity, entitlement ages, and implicit taxes on social security benefits. This study postulates that differences in social security features explain many differences in employment to population ratiosat older ages. This conjecture is assessed quantitatively with a life cycle general equilibrium model of retirement. At ages 60–64 years, the correlation between the simulations of this study׳s model and observed data is 0.67. Generosity and implicit taxes are key features to explain the cross-country variation, whereas entitlement age is not.

The productivity cost of sovereign default: evidence from the European debt crisis

join with Esteban Colla and José María Da-Rocha. Economic Theory, Volume 64, Pages 611–633 (2017)

We calibrate the cost of sovereign defaults using a continuous time model, where government default decisions may trigger a change in the regime of a stochastic TFP process. We calibrate the model to a sample of European countries from 2009 to 2012. By comparing the estimated drift in default relative to that in no-default, we find that TFP falls in the range of 3.70–5.88 %. The model is consistent with observed falls in GDP growth rates and subsequent recoveries and illustrates why fiscal multipliers are small during sovereign debt crises.

Cross‐Subsidies, and the of Informality to Social Expenditures: The Case of Mexico’s Seguro Popular

join with Julio Leal-Ordoñez. The Review of Income and Wealth. Volume 64, Issue 2, June 2018, Pages 482-512.

How is the size of the informal sector affected when the distribution of social expenditures across formal and informal workers changes? How is it affected when the tax rate changes along with the generosity of these transfers? In our search model, taxes are levied on formal‐sector workers as a proportion of their wage. Transfers, in contrast, are lump‐sum and are received by both formal and informal workers. This implies that high‐wage formal workers subsidize low‐wage formal workers as well as informal workers. We calibrate the model to Mexico and perform counterfactuals. We find that the size of the informal sector is quite inelastic to changes in taxes and transfers. This is due to the presence of search frictions and to the cross‐subsidy in our model: for low‐wage formal jobs, a tax increase is roughly offset by an increase in benefits, leaving the unemployed approximately indifferent. Our results are consistent with the empirical evidence on the recent introduction of the “Seguro Popular” healthcare program.

The Effect of Non-Contributory Pensions on Saving in Mexico

join with Catalina Amuedo-Dorantes and Laura Juarez. Economic Inquiry. Volume57, Issue2. April 2019. Pages 931-952

This paper examines the effects of noncontributory pension programs at the federal and state levels on Mexican households’ saving patterns using micro data from the Mexican Income and Expenditure Survey. We find that the federal program curtails saving among households whose oldest member is either 18–54 or 65–69 years old, possibly through anticipation effects, a decrease in the longevity risk faced by households, and a redistribution of income between households of eifferent generations. Specifically, these households appear to be reallocating income away from saving into human capital investments, like education and health. Generally, state programs have neither significant effects on household saving, nor does the combination of federal and state programs. Finally, with a few exceptions, noncontributory pensions have no significant impact on the saving of households with members 70 years of age or older—individuals eligible for those pensions, plausibly because of their dissaving stage in the life cycle.

Work in progress

Measuring the Impact of Pandemics throughout History using Ice-COREs
In this paper, we combine national accounts data since 1300s and paleo climate information to document several feature of GDP p.c and CO2 in pandemic periods through history, using volatility time series econometric analysis.
If we present our results in reverse order, we find that: (i) GDP per capita fell by 12% in 1918 and 7% in 1919, (ii) CO2 emissions fell by 19% between 1918-1920, (iii) GDP per capita also fell in England and Italy, between 1348-1352 and, lastly, (iv) CO2 emissions fell between 165-167, 248-289, 541-542, periods that coincide with four major pandemics: Antonine, Cyprian and Justinian Plagues, and the Black Death.

Misallocation, Firm Size, and Regional Convergence
Micro panel data of Spanish establishments is used to compute aggregate productivity (TFP) and output potential gains obtained by reallocating capital and labor to its more productive use between firms without changing aggregate input allocation within sectors in each region. An efficient reallocation can increase TFP by a factor of two. Finally, we exploit regional differences across sectors to show that TFP potential gains are lower in richer Spanish regions.

Fiscal Multipliers across Spanish Regions
We build a panel of quarterly accounts for 9 Spanish regions from 1995- 2019 to study the impact of government expenditure in regional economic activity, using Structural Vector Autoregression techniques.
We find that 100 euros of government expenditure translate into 100 euros of GDP in the short run and 149 euros in the long run, close to estimates found in the literature across countries. When an endogenous response of taxes is allowed, multiplier values drop to 97 euros in the short run and 127 euros in the long run. Substantial heterogeneity is found across regions but data suggest that fiscal consolidations based on expenditure cuts and tax increases encourage economic activity.

Unpublished work

Social Insurance, Social Assistance and Labor Supply in Latin America
Insured workers work longer hours than uninsured workers in Mexico, they worked 9% more in 1995 and 15% more in 2013. During the same period, Mexico experienced a rise in the generosity of social expenditures, that went from 4% to 8% of GDP. A large part of this rise can be accounted for by social assistance programs aimed to the uninsured population. We argue that the increase in relative hours of work can be accounted for by the rise in social assistance. We use a simple version of the Neoclassical Growth Model (NGM) to quantitatively address how much of the differences, in hours of work, can be accounted for by the rising wedge between social insurance and social assistance

Social Security Programs and Life Cycle Informality
We use employment surveys to document that informality over the life cycle is declining with age in Argentina, Brazil and Chile, but it is a U-Shape in Mexico, once we control for time and cohort effects.
We use a lifecycle incomplete markets model with hours of work and extensive margin choices between formal and informal employment, and non-participation, to highlight the key role of regressive payroll taxes in accounting for the particular shape of informality in Mexico.