Research

WORKING PAPERS / IN PROGRESS

"House Prices and Misallocation: The Impact of the Collateral Channel on Productivity"(with Sergi Basco and Enrique Moral-Benito) 

Conditionally Accepted  The Economic Journal 

Banco de España Working Paper No. 2135  

SUERF The European Money and Finance Forum - Summary

 Media Coverage: The Economist. 

        Abstract: This paper empirically investigates the impact of local house price booms on capital misallocation within manufacturing industries. Using the geographical variation provided by the salient Spanish housing boom (2003-2007), we show that manufacturing firms exposed to positive local house price shocks received more credit from banks and their investment grew more intensively when they had a larger proportion of collateralizable real estate assets. We exploit the geographical variation in both house prices and pre-boom urban land supply at the municipality level to document that this collateral channel was exacerbated for firms located in urban land-constrained areas where real estate appreciation was larger. The interaction of geographical conditions, that led to heterogeneous housing booms, with the collateral channel on investment resulted in an increasing dispersion of the capital-labor ratio within industries. A simple counterfactual calculation suggests that the capital misallocation generated by the collateral channel on investment could account for around 40% of the fall in TFP experienced by the Spanish economy during the housing boom.

PUBLICATIONS

"Venting Out: Exports during a Domestic Slump" [Online Appendix]  (with Miguel Almunia, Pol Antràs and Eduardo Morales) 

American Economic Review, vol.111 (11), November 2021, pp. 3611-3662. [Slides] [Non-technical summary]

          Abstract: We exploit plausibly exogenous geographical variation in the reduction in domestic demand caused by the Great Recession in Spain to document the existence of a robust, within-firm negative causal relationship between demand-driven changes in domestic sales and export flows. Spanish manufacturing firms whose domestic sales were reduced by more during the crisis observed a larger increase in their export flows, even after controlling for firms' supply determinants (such as labor costs). This negative relationship between demand-driven changes in domestic sales and changes in export flows illustrates the capacity of export markets to counteract the negative impact of local demand shocks. We rationalize our findings through a standard heterogeneous-firm model of exporting expanded to allow for non-constant marginal costs of production. Using a structurally estimated version of this model, we conclude that the firm-level responses to the slump in domestic demand in Spain could well have accounted for around one-half of the spectacular increase in Spanish goods exports (the so-called `Spanish export miracle') over the period 2009-13. 

 Media Coverage: VoxEU column, El País, The Wall Street Journal (blog) 

 "Under the Radar: The Effects of Monitoring Firms on Tax Compliance” [Online Appendix] (with Miguel Almunia)   

American Economic Journal: Economic Policy, vol. 10 (1), February 2018, pp. 1-38. 

Awards: IIPF Young Economists Award 2015,  Vanguardia de la Ciencia Award 2019. 

Abstract: This paper analyzes the effects of size-dependent tax enforcement on firms’ tax compliance. We exploit quasi-experimental variation generated by a Large Taxpayer Unit (LTU) in Spain which monitors firms with more than 6 million euros in reported revenue.Firms strategically bunch below the eligibility threshold in order to avoid stricter tax enforcement. The response is stronger in sectors where transactions leave more paper trail, suggesting that monitoring effort and the traceability of information reported by firms are complements. We estimate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses. 

 Media Coverage: The Economist, El País, Nada es Gratis (twice)

 "The Elasticity of Taxable Income in Spain: 1999-2014” [Supplementary Material] (with Miguel Almunia)   

SERIEs - Journal of the Spanish Economic Association, vol. 10 (3), November 2019, pp. 281-320. [Slides]

    Abstract: We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three time larger for self-employed taxpayers than for employees and larger for business income than for labor and capital income. The elasticity of broad income is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension constributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions and also robust to potential biases created by mean reversion and heterogeneous income trends. 

RESEARCH IN PROGRESS

“The Effectiveness of Fiscal Incentives for Business R&D in Spain", with Miguel Almunia.

"Size-Dependent Regulations in Spain", with Miguel Almunia and Juan F. Jimeno.

 “Credit Supply, Education and Mortgage Debt: The BNP Securitization Shock in Spain”, with Sergi Basco and Ferran Elias. 

OLD WORKING PAPERS 

“Distributive Politics and Economic Ideology”

Abstract:  This paper investigates the effect of ideological preferences over the economic role of government on the political redistribution of income and the electoral competition among political parties. The proposed model points out that the presence of both ideological politicians who compete for office and electoral uncertainty generate a partisanship effect on economic policy. In particular, pro-market (right-wing) politicians commit to lower public provision of goods and income taxation schedules that implement larger income inequality than pro-government (left-wing) politicians. The model also shows that the public funding of goods through income taxation confers an electoral advantage to pro-market ideological positions. In fact, pro-market politicians can court moderate pro-leftist voters by promises of higher net income that pro-government politicians are not willing to fund. As a result, a right-wing party exhibits larger chances of winning elections, and its policy proposal determines lower ideological sacrifice than for the left-wing party.

 “The Scope of Political Redistribution with Proportional IncomeTaxation” 

Abstract: This paper investigates the politicians' incentives to pursue income redistribution when governments are constrained to levy taxes on labor income and this creates distortions. Politicians who strive to be elected may strategically redistribute through in-kind rather than cash transfers and overprovide consumption of goods. I show that the overprovision of in-kind transfers reduces the disincentive effects of taxation in labor effort and enlarges the pool of resources for political redistribution. As a result, politicians are able to implement larger redistributive transfers and improve the well-being of swing voters. Hence, electoral competition for pivotal voters provides politicians incentives to implement redistributive schedules that reduce distortions in labor markets and improve the efficiency of the taxation system. 

“The Political Economy of In-Kind Redistribution” 

Abstract:  This paper examines the electoral incentives for political redistribution through in-kind transfers. By analyzing the political game between office-motivated politicians and self-interested citizens, I first show that in economies with competitive markets in-kind transfers are not required. Politicians can win elections targeting groups of voters with differential cash transfers. However, in-kind transfers arise in the presence of externalities in consumption. In that case, targeting groups of voters with in-kind rather than cash transfers allows politicians to attract simultaneously voters in additional groups with the same amount of resources. Politicians undertake political redistribution depending on the expected electoral returns obtained from targeting both cash and in-kind transfers into different groups. Furthermore, electoral competition leads the economy to achieve Pareto efficient allocations that markets cannot reach. Politicians internalize the presence of external effects when competing for marginal voters who could swing their vote.