RESEARCH
Analytical Policy Guidance
Reaching the Pre-Covid Convergence Path Through the Lens of a Dynamic General Equilibrium Macro Model, in Macroeconomic Developments and Prospects In Low-Income Countries—2021
Working Papers/ Work in Progress
The Macro-Inequality Impact of Global Food Prices in Sensitive African Countries (with Stefania Fabrizio and Dan Zheng).
Targeted Transfers in South Africa (with Papa Bagnick N'Diaye and Vybhavi Balasundharam)
Macro Inequality Impact of Fiscal Policies in Namibia (with Daniel Gurara)
Working Papers / Papers Pending Revision or Review
A "One Percent" Development Policy for Chad (joint with Ljubica Dordevic)
What is the impact of devoting an additional 1 percentage point of GDP to development policy? We answer this question for the case of Chad using a multi-sector macroinequality model with heterogeneous agents. We quantify the long-run macro-inequality impact of investing 1 percentage point of GDP in human capital, inclusive infrastructure, and targeted social transfers. We focus on the response of traditional indicators (GDP, labor formalization, poverty rates, etc.) and on a novel \climate-change equivalent" indicator which measures the maximum climate change that could be counteracted by a given development policy.
Why has the U.S. black/white earnings gap remained around 40 percent for nearly 40 years? I provide a model of skill accumulation and neighborhood formation featuring a trap: Initial racial inequality and racial preferences induce racial segregation and asymmetric skill accumulation choices that perpetuate racial inequality. Calibrated to match the U.S. distribution of race, house prices and earnings across neighborhoods, the model produces one-half of the observed racial earnings gap. Moving the economy from the trap to a racially integrated steady state implies a 15.6 percent welfare gain for black households and a 2.7 percent loss for white households.
An American Inequality Trap (former reject-revise at American Economic Review)
Publications / Forthcoming
When will Global Gender Gaps Close? (with Rishi Goyal, Economics Letters 2024),
Mining Revenues and Inclusive Development in Guinea (with Rachel Lyngaas, IMF Working Papers, 2023) What are the potential benefits of increasing the taxation of a foreign extractive sector? This paper applies this question to the case of Guinea by using a multi-sector macro-inequality model with heterogeneous agents. We quantify the long-run equilibrium impact of additional taxation when the proceeds are invested in human capital, inclusive infrastructure, and social transfers. Our analysis focuses on the response of GDP, labor formalization, poverty rates, Gini coefficients, rural/urban inequality and sectoral reallocation. The three forms of investment are complementary. Infrastructure investments favor formal production in the urban area while growth and government transfers boost the demand for food. These effects help support the rate of return to education, protecting job formalization through higher wages and prices of informal goods, as the education policy boosts labor supply in rural and urban areas.
Taxing Top Earners: A Human Capital Perspective (with Mark Huggett and Wenlan Luo, Economic Journal, 2020) An established view is that the revenue maximizing top tax rate for the US is approximately 73 percent. In contrast, the revenue maximizing top tax rate is approximately 49 percent in our quantitative human capital model. The key reason for the lower top tax rate is the presence of two new forces not captured by the model underlying the established view. These new forces are strengthened by the endogenous response of top earners’ human capital to a change in the top tax rate. Press commentary: Xsede, NEP-DGE, Forbes.
Top Earners: Comparing the US, Canada, Denmark and Sweden (joint with Moira Daly, Martin Nybom and Mark Huggett. Federal Reserve Bank of St. Louis Review, 2018)
We document a common set of life-cycle earnings facts using data from the US, Canada, Denmark and Sweden. In each country, we find that (1) the earnings distribution fans out with age, (2) the right tail of the earnings distribution becomes thicker with age, (3) the wage-rate distribution fans out with age and (4) the real earnings growth rate over the working lifetime is larger for higher lifetime earners. Quantitative models of top earners should account for Facts (1)-(4) and, importantly, for how they differ across countries.
The Sufficient Statistic Approach: Predicting the Top of the Laffer Curve (joint with Mark Huggett. Journal of Monetary Economics, 2016)
A formula for the revenue maximizing top tax rate is derived as a function of three elasticities. The formula applies to static models and to steady states of dynamic models and is relevant for the top tax rate on any component of income. The formula is applied to several classic models. The application of the formula is also illustrated using a quantitative human capital model.
slides_AEA_2017, related_blogpost.
Quantitative Macro vs. Sufficient Statistic Approach: A Laffer Curve Dilemma? (Federal Reserve Bank of St. Louis Review, Third Quarter, 2015)
This article highlights two approaches to tax policy for the top 1 percent of earners. On the one hand are dynamic general equilibrium models requiring complicated calibration and simulation algorithms and strong structural assumptions. On the other hand is the sufficient statistic approach, which attempts to parsimoniously reach the trinity of empirical, theoretical, and policy relevance. The author illustrates ongoing work highlighting explicit connections between these two approaches.
Interpreting Life-Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible? (joint with Mark Huggett. Review of Economic Dynamics, 2014)
The life-cycle patterns of consumption, wage and hours inequality observed in U.S. cross-section data are commonly viewed as incompatible with a Pareto efficient allocation. Are these patterns consistent with Pareto efficiency in a model with preference shocks, wage shocks and full information? We determine the extent to which the qualitative and quantitative patterns can or cannot be produced by Pareto efficient allocations in such models. CODES
Representative Neighborhoods of the United States (Federal Reserve Bank of St. Louis Review, Second Quarter, 2014)
Racial segregation within metropolitan areas, and significant differences in average earnings and housing prices across neighborhoods are striking characteristics of metropolitan US. This paper applies off-the-shelf clustering methods to summarize the complexity of US neighborhood-level data.
Decomposing the Gender Gap with Sample Selection Adjustment: Evidence from Colombia (with Ximena Pena, Revista de Analisis Economico, 2010)
We employ quantile regression with selection correction and Machado-Mata decompositions to examine the degree to which the observed small differences in the distribution of observable characteristics can explain the gender gap in Colombia. We claim that Colombian women experience both a “glass ceiling effect’’ and also (what we call) a “quicksand floor effect” because gender differences in returns to characteristics primarily affect women at the top and the bottom of the distribution. Also, self selection into the labor force is crucial for gender gaps: if all women participated in the labor force, the observed gap would be roughly 50% larger at all quantiles. Press coverage: BBC, Espectador.
Permanent Racial Inequality (2009)
Dissertation: Permanent Racial Inequality (2009)
Publications In Spanish
La Crisis de Financiamiento Hipotecario en Colombia: Causas y Consecuencias (with Mauricio Cárdenas Santamaría, 2003, Inter American Development Bank)
We provide evidence that the Colombian mortgage crises of 1998 was a consequence of an increase in loan-to-value ratios, which increased the sensitivity of household balance sheets to macroeconomic fluctuations.
Choques financieros, precios de activos y recesión en Colombia (2002, Revista Desarrollo y Sociedad, Universidad de los Andes)
In Colombia, the late 1990's are characterized by a collapse in asset prices, a collapse of credit and an economic recession. This paper argues that those phenomenae can be coherently explained by a negative shock to external financing. In particular, the paper presents a single agent version of Kiyotaki and Moore (1997) where external finance shocks generate amplified and persistent fluctuations in asset prices and output.
Sistema Bancario Colombiano: ¿Somos eficientes a nivel internacional? (2002, Revista Pleanación y Desarrollo, Departamento Nacional de Planeación)
En este trabajo se realiza una estimación de la Eficiencia X para una muestra trimestral, entre marzo de 1998 y diciembre de 2000, para 54 bancos latinoamericanos. Las limitaciones de información hacen de este un ejercicio exploratorio, en el cual sólo se incluyen dos países además de Colombia (México y Costa Rica). Sin embargo, constituye el primer intento por realizar una comparación de Eficiencia X a nivel internacional para países latinoamericanos.
Paper Discussions
Auten and Splinter " " at AEA 2018, session: Macro Shifts and Distributional Impacts
Brugemmann 2017, "" AEA 2017, session: Aggregate and Distributional Consequences of Wealth and Income Taxes
Hurst, Charles and Notowidigdo "Manufacturing Busts...", at HULM 2012.
Nathan 2o1o "Ethnic Inventors..." at Urban Economics Associatioin 2010. Session: Impacts of Segregation
Henderson, Cai and Zhang "China's Land Market Auctions:...", Wisconsin-Fed (HULM) Conference 2010
Dorofeenko, Lee and Salyer "Agency Costs, Housing Production and Business Cycles" at Winter AEA Meetings 2010, Session: Issues in Real Estate Markets