Research

Working Papers

"Heterogeneous Bribery, Technology Choice, and Capital Accumulation" (under review) with Jafar M. Olimov and Hao-Yu Yang

Abstract:  We study the production, entry, and technological decisions of firms in the presence of bribery. We find that bribery can be justified even in the absence of bureaucratic inefficiencies. We document substantial technology-specific heterogeneity in bribery in 148 countries and incorporate it into a general equilibrium model, where firms use capital-intensive or labor-intensive technology. When bribery more heavily affects less efficient labor-intensive firms, resources move toward more efficient capital-intensive firms, resulting in higher capital accumulation and aggregate output. In poorer countries, the elimination of bribery only for capital-intensive firms increases the capital stock by 18.7% more and the aggregate output by 3.4% more than the complete elimination of bribery. In wealthier countries, the elimination of bribery only for capital-intensive firms increases the capital stock by 44.4% more and the aggregate output by 15.4% more than the complete elimination of bribery. Our findings challenge the established view of bribery as uniformly harmful and demonstrate how the within-country heterogeneity in bribery can explain cross-country differences in income.

"Income Inequality, Growth Inequality, and Redistribution in Taiwan, 2001-2015: Evidence from Distributional National Account" with Wei-Lun Lee, Ming-Jen Lin, and Shane Su  

Abstract: This paper provides a comprehensive view of various inequality issues by constructing and analyzing a dataset of Distributional National Accounts for Taiwan. We construct new pre-tax and post-tax individual income series that are consistent with national income, allowing us to compute distribution of economic growth and evaluate the effects of redistribution. Much higher than previously estimated, income inequality in Taiwan is similar to the magnitude found in the U.S., and it has risen rapidly from 2001 to 2015. For pre-tax income, the Gini coefficient has increased from 0.6 to 0.64, and the top 10% (1%) income share has increased from 43% (16%) to 48% (19%). This rise of top income shares is mainly from an upsurge in capital income. The distribution of economic growth is even more unequal: The Gini coefficient of economic growth is 0.72, the top 10% growth share is 60%, and about 92% of the population has an income growth rate lower than the average growth rate. Finally, the redistribution system in Taiwan is effective: It reduces total income inequality by 39%, higher than the U.S. (34%) and France (24%). Moreover, the magnitude and the effect of redistribution are increasing, successfully flattening the rising pre-tax inequality into a stable post-tax inequality. Among all policies, the National Health Insurance system accounts for the greatest benefits to the bottom income groups.

"The 2008 U.S. Auto Market Collapse" with Bill Dupor, Rong Li, and M. Saif Mehkari 

New vehicle sales in the U.S. fell nearly 40 percent during the past recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores three potential explanations for this decline: increasing oil prices, falling home values, and falling household income expectations. First, we use the historical macroeconomic relationship between oil prices and vehicle sales to show that the oil price spike explains roughly 15 percent of the auto sales decline between 2007 and 2009. Second, we establish that declining home values explain only a small portion of the observed reduction in household new vehicle sales. Using a county-level panel from the episode, we find (1) a one-dollar fall in home values reduced household new vehicle spending by 0.5 to 0.7 cents and overall new vehicle spending by 0.9 to 1.2 cents and (2) falling home values explain between 16 and 19 percent of the overall new vehicle spending decline. Next, examining state-level data for 1997-2016, we find (3) the short-run responses of new vehicle consumption to home value changes are larger in the 2005-2011 period relative to other years, but at longer horizons (e.g. 5 years), the responses are similar across the two sub-periods and (4) the service flow from vehicles, as measured by miles traveled, responds very little to house price shocks. We also detail the sources of the differences between our findings (1) and (2) from existing research. Third, we establish that declining current and expected future income expectations potentially played an important role in the auto market's collapse. We build a permanent income model augmented to include infrequent repeated car buying. Our calibrated model matches the pre-recession distribution of auto vintages and the liquid-wealth-to-income ratio, and exhibits a large vehicle sales decline in response to a mild decline in expected permanent income due to a transitory slowdown in income growth. In response to the shock, households delay replacing existing vehicles, allowing them to smooth the effects of the income shock without significantly adjusting the service flow from their vehicles. Augmenting our model with a richer set of household expectations allows us to match 65 percent of the overall new vehicle spending decline (i.e. roughly the portion of the decline not explained by oil prices and falling home values). Combining our negative results regarding housing wealth and oil prices with our positive model-based findings, we interpret the auto market collapse as consistent with existing permanent income based approaches to durable goods purchases (e.g., Leahy and Zeira (2005)).