* Materials, Technology and Growth: Quantifying the Costs of Circularity (with Z. Mahone)
Environmental concerns have led many governments to introduce policies intended to reduce material extraction and boost recycling rates - i.e. to improve "circularity". We develop a growth model of directed technical change with material use and recycling to quantify the costs of such policies. In the United States, a 54% increase in subsidies achieves a recycling rate of 50% and costs 0.09% in foregone consumption. However, this yields virtually no reduction in new material extraction. Virgin material taxes achieve substantial reductions but at significant cost - a 10% decline in extraction by 2030 implies a 0.6% (1.86%) decline in consumption (output).
Revise & Resubmit, AEJ Macro
Some results from this paper are included in the National Academies Report (MSW Recycling in the United States, 2025)
* Laffer Curves in Brazil: The Tax Evasion Effect (with F. Alencar, M. Araripe, M. Correa)
This paper quantifies the impact of tax evasion on the labor-income Laffer curve in Brazil. We develop a heterogeneous-agent model with incomplete markets, progressive taxation, and imperfect tax enforcement. Beyond the well-known arithmetic and economic effects, the model highlights a novel evasion effect – higher statutory rates induce greater concealment of income and reduce effective tax collections. Calibrated to Brazilian data, the model shows that the aggregate Laffer curve peaks at a marginal rate of 25.3%, below the current 27.5%. Tax evasion reduces potential revenue by up to 54% (3.1% of GDP), with losses concentrated among high-income households. A decomposition analysis further reveals heterogeneous responses across income groups, underscoring distributional and policy implications.
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* Optimal Taxation of Recyclable Goods (with Z. Mahone and E. Mattos)
In this paper, we develop a simple general equilibrium model to analyze the optimal linear taxation of recyclable goods, accounting for the heterogeneity in material recyclability. The model integrates household decisions over consumption and leisure, where a fraction of consumption generates waste, with a recycling firm transforming waste into reusable materials. Firms use both virgin and recycled materials to produce output, and recyclable materials differ significantly in their recyclability. This heterogeneity, often overlooked in policy design, highlights the inefficiency of uniform recycling policies. We show that socially optimal allocations can be achieved through a consumption tax, material-specific recycling subsidies, and virgin material taxes. Unlike the optimal consumption tax literature, the consumption tax balances the marginal cost of waste processing with the marginal benefit of recycled materials in final goods production. Material-specific subsidies address imperfections in recycling, while the Pigouvian tax on virgin materials rises with the external costs of resource extraction. To quantify these optimal policy instruments, we combine data from Material Flow Accounts (MFAs), the Environmental Protection Agency (EPA) on waste generation and recycling, and production data from the National Income and Product Accounts (NIPA). We estimate material-specific recycling subsidies and virgin material taxes for five key material categories: Biomass (Paper and Wood), Metal Ores (Ferrous, Non-ferrous, Aluminum), Non-metallic Minerals (Glass), Fossil Fuels (Plastic), and Non-Disaggregated Materials (Rubber, Leather, and Textiles).
* Material, Energy Use and Climate Change
To assess the role of economic policy in addressing material use and climate change, this research project develops a global economy-climate model using stochastic dynamic general equilibrium (DSGE) methods. The model treats the world as a uniform region inhabited by a representative consumer dynasty and incorporates global externalities from carbon dioxide emissions, a by-product of fossil fuel use in production, as well as from virgin material extraction and landfill waste. It captures the interaction between energy consumption and material use, both of which contribute to greenhouse gas emissions and climate change. The model also incorporates material recycling, which can reduce the need for virgin material extraction and lower associated environmental costs. By analyzing these dynamics, the goal is to quantify both the short- and long-term macroeconomic costs and benefits of policies aimed at reducing material extraction, improving recycling, and mitigating climate change.
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