Sergio Ocampo Díaz

When is a wealth tax preferable to a capital income tax? We study this question theoretically in an infinite-horizon model with entrepreneurs and workers, in which entrepreneurial firms are subject to idiosyncratic productivity shocks and collateral constraints. There are two types of steady-state equilibria. The first one—which emerges under a wide set of plausible parameter values—is inefficient and exhibits capital misallocation and heterogeneous returns. The second one is efficient and exhibits homogeneous returns, but requires implausibly lax borrowing limits. In the heterogeneous returns, equilibrium replacing a capital income tax with a wealth tax increases steady-state aggregate productivity and output if (and only if) entrepreneurial productivity is positively auto-correlated. The gains result from the “use-it-or-lose-it” effect, which causes a reallocation of capital from entrepreneurs with low productivity to those with high productivity. We provide necessary and sufficient conditions for a switch to wealth taxes to imply higher average welfare, which amount to a lower bound on the capital-elasticity of output, α—around 1/3 for most parameter combinations. We then study the optimal mix when both tax instruments can be used jointly to maximize welfare. Optimal policy depends on two thresholds. When α is sufficiently high, optimal policy involves a positive wealth tax and a negative capital income tax (a subsidy); the sign flips when α is sufficiently low, and both taxes are positive between these two thresholds. Finally, we consider extensions that introduce a corporate sector, rent-seeking behavior, and endogenous entrepreneurial effort.

I develop an assignment model of occupations with multidimensional heterogeneity in production tasks and worker skills. Tasks are distributed continuously in the skill space, whereas workers have a discrete distribution with a finite number of types. Occupations arise endogenously as bundles of tasks optimally assigned to a type of worker. The model allows us to study how occupations respond to changes in the economic environment, making it useful for analyzing the implications of automation, skill-biased technical change, offshoring, and worker training. Using the model, I characterize how wages, the marginal product of workers, the substitutability between worker types, and the labor share depend on the assignment of tasks to workers. I introduce automation as the choice of the optimal size and location of a mass of identical robots in the task space. Automation displaces workers by replacing them in the performance of tasks, generating a cascading effect on other workers as the boundaries of occupations are redrawn.

We evaluate the aggregate effects of development policies in environments where subsistence self-employment is prevalent. We extend a standard macro development model to include unemployment risk, which becomes a key driver of selection into self-employment. The model is consistent with the joint distribution of earnings and occupations, with the reaction of wages to labor demand shocks, and with the small micro effects of expansions in the supply of microloans on firm-level outcomes. We use the model to study the aggregate effects of various policies, such as micro-finance and targeted cash transfers. The effects on total factor productivity (TFP) are ambiguous and depend on the targeting and generosity of the policies. Our model predicts changes in TFP that range from -0.45 percent to 0.42 percent after small interventions. Subsidized loans and broad cash transfers encourage subsistence self-employment, lowering TFP. Loans at market rates and targeted transfers discourage subsistence self-employment, increasing TFP.

Extra: Previous version with additional productivity shifters (Draft, 2019)