Working Papers

Growth Implications of the Political Determination of Transfers and Public Investment
This paper inquires into the effects of inequality on economic performance. A key assumption is that public spending is a complement to private inputs in the production process. Severe heterogeneity on the ability to earn income creates a conflict of interests between agents on public policy. Specifically, some agents differ on their most preferred tax rate; on how much revenue should be devoted to public investment; and on how much should be devoted to income transfers. Results in a parameterized model of endogenous growth show that if the median agent is sufficiently poorer than the mean, a political outcome creates some distortions that hinder economic growth in a balanced growth path. The result is mainly driven by the skewness of the income distribution.

Financial Liberalization, Multi-Cohort Effects, and the Run-up and Run-down in the Housing Market
This paper develops a life-cycle model to investigate whether innovation or liberalization in mortgage markets contributed directly to both: the run-up; and the eventual collapse in home sales and prices in the period following the year 2005. Analytical and quantitative results suggest an answer on the positive. In the model, housing market liberalization temporarily overshoots the volume of transactions and home prices through a mechanism of multi-cohort effects. This is followed by a sharp decline in sales volume and prices once the initial effects subside. Finally, tackling measures tightening access to credit can worsen the effects in a weakening housing market. 

A Search-Theoretic Model on the Legalization of Drugs
This paper develops a search model of the drugs market to take into account the long-term nature of user-dealer relationships (overlooked in Walrasian markets), as well as moral hazard in illegal drugs’ markets. Preliminary results provide the conditions under which a market free of illegal dealers is achievable by partial legalization.