Firm Dynamics after COVID-19: A Structural Model (available upon request)
I study the effects of the COVID-19 pandemic on firm dynamics and the real economy, and evaluate the efficacy of various policiesdesigned to lower firms’ liquidity needs. I propose a firm dynamics model with investment in physical capital, in which firms seekout external liquidity in order ti finance ongoing operations. In response to an unexpected fall in aggregate demand as well astemporary workforce reductions due to stay at home orders, firm exit increases and entry decreases. The pandemic has lastingeffects on the stock of firms and aggregate output, but only transitory effects on firm selection and aggregate growth. I find thatpolicies which directly reduce fixed costs can have a significant effect on the evolution of the real economy in the ling run by curbingfirm exit in the immediate aftermath of an aggregate shock. However, the policies need to be in place several periods in the worst hitsectors of the economy in order to be effective because firms expect aggregate demand to only recover slowly. Measures attemptingto lower firm total payrolls on the other hand are only effective in sectors heavily affected by stay at home orders.
Born in Hard Times: Startup Selection and Intangible Capital During the Financial Crisis, with F. Manaresi and F. Scoccianti, Questioni di Economia e Finanza (582)
We study the selection at entry and through exit of cohorts born during the financial crisis, exploiting a large dataset covering thecensus of Italian corporations. Firms born during the crisis display a persistently higher share of intangible capital. This stems frompositive selection at entry and lower exit rates over the first years of life. Higher intangibility is accompanied by higher productivityof capital and TFP. Exploiting an exogenous shift of local credit supply, we show that this selection stems from tightening creditconditions. We rationalize the empirical findings using a firm dynamics model with two types of capital, two technologies, andexternal financing costs. The model emphasizes how a shock to external finance induces a composition effect among entrants: low-intangible startups suffer from fiercer selection and their entry rate drops; intangible-intensive firms are less affected by credittightening, owing to their higher capital efficiency. This composition effect may reduce the negative impact of a financial shock toTFP growth.
Court Inefficiency and Aggregate Productivity: The Credit Channel, with Giacomo Rodano, Temi di Discussione (1287)
Empirical evidence suggests banks take into account the efficiency of civil courts when pricing and rationing credit to firms,although there exists contradictory evidence on the direction of said effects. On the other hand, the evidence on the effect of courtefficiency on firm dynamics is significantly clearer: faster civil justice systems where creditors recuperate larger fractions of theirinvestments are positively correlated with firm entry and growth. First, using data from the Italian firm registry, and the Italian creditregistry, we confirm that court efficiency is positively associated to better firm dynamics, while the effects on bank loan quantitiesand prices are at best unclear. Second, we rationalize this finding by developing a firm dynamics framework à la Hopenhayn (1992)in which banks price loans to firms taking into account both firms’ characteristics, and the competition banks face in their ownsector. We find that while both lowering case resolution times and increasing expected recovery rates always lead to larger, moreproductive firms in equilibrium, the effects on loan rates and the volume of loans issued vary depending on competition in thebanking sector.
Measuring the Aggregate Effects of Simplifying Firm Creation in Italy, Questioni di Economia e Finanza (365).
A series of reforms passed in Italy in 2010 reduced the expected duration of registration and startup procedures for new businesses.Previous research found that procedural simplifications of this nature have a positive impact on the selection of firm entry in theshort run and consequently on their productivity. These studies, based on natural policyexperiments and lacking precise estimatesfor the duration of the startup process in Italy, are not designed to predict both the long-term effects and the aggregate implicationsof such reforms. Using a general equilibrium framework with heterogeneous firms and households, and micro-level data for Italianhouseholds, I provide an estimate for average startup times inItaly and find that further reforms of a similar nature could produce asignificant increase in aggregate firm productivity and output, which is qualitatively in line with previous findings.
Financing Heterogeneous Entrepreneurs: Determinants of Income Inequality, CEMFI Master Thesis.
I construct a small open economy with uninsurable, idiosyncratic shocks. Agents are heterogeneous in entrepreneurial ability andfinancially constrained, prompting an endogenous firm size distribution. I calibrate the economy to Ecuadorian firm micro-data inorder to measure the effects of lowering financial enforcement on: GDP, total factor productivity, entrepreneurial selection, firm sizedistributions and wealth inequality.
Consumption-led Development, Stanford University Second Year Paper
This paper addresses the question of whether the size of the middle class, defined as the segment of the population following certainconsumption patterns, is a determinant of aggregate output. It first provides a survey on the state of the literature on the matter andthen studies the question quantitatively. The main mechanism through which the results are explained is the non-homotheticity ofagents' preferences in the presence of various types of goods.
Aggregate Effects of Bureaucratic Startup Costs, PhDThesis Chapter
Cross-country estimates find increasing government startup fees for creating a business amount to substantial decreases in output.According to World Bank data, over 190 countries performed more than 600 reforms to reduce these costs between 2002 and 2013.Nevertheless, output did not respond as expected in any of these cases. Why? I explore the theoretical channels through which thesecosts translate into aggregate productivity and output distortions. I then estimate the aggregate impact of bureaucratic startup costsfor Spain—a developed economy in which startup fees amount to 17 percent of income per capita and the corresponding procedurestake over 80 days to complete. I find the effects of startup costs on output to be sizable, but significantly lower than previouslythought to be. In particular, reducing monetary costs to US levels increases output by 1.6 percent, whereas reducing time costs to USlevels increases output by 3.7 percent. Additionally I find monetary and time costs have very different effects on entrepreneurialselection, the business productivity distribution, and the business size distribution—an issue not addressed previously in theliterature.
Dissecting Insolvency: A Model of Firm Distress in Italy, with Federico Fornasari, Tommaso Orlando, and Giacomo Rodano
The number of financially distressed firms that are forcefully liquidated in Italy, as opposed to being restructured, is considerably higher than in comparable advanced economies. Additionally, there is a clear selection into restructuring, so that only larger firms pursue it. We propose an extended version of Donaldson et al. (2020) tailored to the the Italian insolvency code as a building block to study the effects of various policy interventions on the outcomes of corporate default. Using Italian data on firm and credit characteristics, we find that the model fits a number of relevant stylized facts.