Working Papers

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• This study develops a stochastic growth model to investigate how tax morale, a nonfinancial cost of evasion, fundamentally shapes the growth-inequality nexus. The analysis reveals a stark policy challenge determined by the prevailing level of morale. High tax morale sustains a desirable no-evasion equilibrium, allowing the economy to achieve its maximum potential growth rate without exacerbating inequality. Conversely, low morale traps the economy in an inefficient evasion equilibrium. In this state, the stochastic nature of evasion not only hinders growth but also endogenously creates a stationary double Pareto wealth distribution, leading to persistently high inequality. Crucially, this framework generates a non-monotonic relationship between growth and inequality-an "inequality overhang"-driven by the endogenous response of evasion to the wealth tax rate. 

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• This paper studies how the informal sector affects long-run growth and welfare, not merely the static allocation of resources. I develop a tractable firm-dynamics model that jointly determines the firm-size distribution and the growth rate, with both an extensive margin (whether a firm is formal) and an intensive margin (partial compliance within formal firms), and that yields closed-form decompositions of growth and output. By sheltering low-productivity firms, informality alters dynamic selection---and hence the growth rate---a channel invisible to steady-state frameworks. Calibrated to Mexico, the model shows that a lower formal-sector tax rate raises growth but compresses the firm-size distribution and lowers the level of output---a trade-off absent under exogenous growth---while formalization nonetheless raises consumption, public goods, and welfare. The two margins act in opposite directions, and the growth channel matters for the extensive margin but not the intensive one.

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• This paper provides a margin-based evaluation of international anti-profit-shifting policies. I develop a continuous-time heterogeneous-firm model in which firms choose whether to adopt a tax-haven structure and, conditional on adoption, how much profit to shift. The model separates three primitive margins: the organizational cost of haven adoption, the marginal cost of shifting, and the home–haven tax differential. Calibrated to 2019 U.S. data, it shows that adoption-margin reforms mainly change which firms use havens but leave aggregate shifted profits nearly unchanged, because marginal adopters are small and shift little. By contrast, enforcement that raises marginal shifting costs and rate coordination that compress tax differentials have larger direct effects on the tax base and welfare through public-good provision. In the calibrated Stackelberg game, a binding Pillar Two floor removes the haven’s undercutting margin and raises welfare.

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• We examine the implications of virus mutation for optimal lockdown policy in an epimacro model. We consider three ways of modelling virus mutation—one deterministic setup and two stochastic setups featuring a two-state and three-state Markov process. We find that the effects of virus mutation are asymmetric. In particular, a future reduction in the transmission rate increases lockdown intensity by more than a future rise in the transmission rate lowers it. As a corollary to this asymmetry, an increase in uncertainty about future mutation is non-neutral and reduces lockdown intensity under the optimal policy.

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• Although the steady state equilibrium is represented by a single point in the capital-consumption plane in the standard Ramsey model, it is by a straight line in a Ramsey model with heterogeneous individuals. Taking advantage of this fact,  this paper applies the backward induction method to analyze the transitional dynamics of the Ramsey model with heterogeneous individuals, and examines the role of heterogeneity in intertemporal elasticity of substitution  (IES). When no heterogeneity exists in IES across individuals, then the wealth Gini declines as capital accumulates, while the wealth gap expands. In contrast, with heterogeneity, various dynamics of wealth distribution can emerge, including a U-shaped relationship between income and inequality. It is also shown that an inverted U-shaped relationship,  i.e.,  the  Kuznets curve can be explained by Stone-Geary preferences, which allow IES to change with wealth.