Research

Abstract: What are the consequences of ignoring the impact of tax progressivity on growth in the assessment of the efficiency-equity trade-off? We adopt an endogenous growth framework that considers the decision to become a researcher and the effort established entrepreneurs must make to improve their products. Our model delivers an increasing and convex relation between an economy's growth rate and its Gini coefficient. After calibrating our model to the US economy, we find that the optimal level of income tax progressivity is slightly lower than the current one, but that welfare gains from adopting the optimal taxes are moderate -- CEV= 0.5%. However, if one were to disregard the impact of progressivity on growth, one would prescribe a substantially higher level of progressivity at significant welfare cost -- CEV= -9%.

Ensaios Economicos Version

Abstract: We study the role of gender-specific subsidies in optimal household taxation. Starting from an optimally designed income-splitting schedule, we show that subsidies on women’s earnings affect not only labor supply but also intrahousehold bargaining power. This empowerment channel amplifies welfare gains by shifting Pareto weights toward women. Quantitatively, we take our model to the U.S. Current Population Survey (CPS) data and find that subsidies on women’s earnings substantially raise welfare. At the optimal rate of approximately 16% of female earnings, virtually all women experience gains, with 78% of them experiencing welfare gains of at least 5%. By contrast, shutting down the empowerment channel reduces the optimal subsidy to near zero and yields negligible average gains, helping reconcile our findings with the standard unitary-household framework. These results highlight how incorporating intrahousehold power dynamics overturns conventional prescriptions in optimal tax design.

Abstract: When searching for employment, workers consider non-wage job characteristics, like effort requirements or amenities. We study an environment where unemployed workers search for jobs of different quality in a labor market characterized by directed search. In equilibrium, firms are more likely to post vacancies for low-quality jobs, as these are more profitable. The non-observability of these employment contracts influences the optimal unemployment insurance (UI) program, leading to distortionary taxation. Calibrating the model to the U.S. economy, we find that non-observability of employment contracts results in faster declining UI benefits, steeper taxes upon re-employment, distortionary taxation, and a 10.5% costlier program.

Abstract: This paper offers a framework for addressing the limits of redistribution with collective households. The approach takes the impact of marriage markets on household allocations into account while retaining the relevance of after-marriage bargaining. After-marriage bargain allows to accommodate the evidence accumulated against income pooling that motivates policies like wife-targeted cash transfers in Mexico's Oportunidades/Prospera and Brazil's Bolsa Família. The model is tractable enough for a revelation principle to be used for characterizing the set of implementable allocations. We ask whether redistribution can always be achieved via a tax schedule and find it cannot; the optimal mechanism is superior because a tax schedule must simultaneously influence household choices and bargaining power. Allowing spouses to choose from a menu of tax schedules expands feasible allocations compared to a single schedule. Calibration to the U.S. economy shows that removing the option for married couples to file separately has a quantitatively relevant impact on labor supply and time spent on home production. We conduct optimal taxation exercises under various restrictions on policy influence over spouses’ bargaining power and find that, for a reasonable range of restrictions, the welfare effects are large but negative jointness is a robust feature of the optimal tax schedule.

This paper has previously circulated with the title "Who should bear the risk of economic growth?"

Abstract: Should workers or retirees bear the risk of economic growth? We show that the optimal split of resources between the two groups depends on two statistics. First, is a moment condition that captures the relative marginal value of resources for workers, who must be incentivized, and retirees, who no longer need to be. The second captures how the backloading of incentives through the social security replacement ratio varies across states of nature. We use these statistics to show that a constant split of resources is optimal when the utility from consumption is logarithmic or when aggregate productivity growth is i.i.d. When neither condition holds, deviations from the constant split can increase welfare. We numerically test this prediction and find that deviations from the constant split allocation are small. We relate this quantitative finding to the failure of a consumption-based stochastic discount factor (SDF) to price economic growth, which is reminiscent of the equity premium puzzle (EPP). Once we augment our model with shocks that generate an SDF compatible with asset price behavior, we find quantitatively significant deviations from the constant split allocation.

Abstract: What is the optimal size of the informal sector? We address this question using a mechanism design approach featuring worker heterogeneity and applied to rich administrative data from Brazil. Informality presents a fundamental trade-off: while it provides a safety net for low-income workers, it creates opportunities for tax evasion that constrain the design of transfer policies. We find Brazil's socially optimal informality rate to be 15%, exhibiting a hump-shaped pattern across the income distribution. General equilibrium effects dampen redistribution across formal workers but transfer income across sectors through changes in relative wages. Optimal informality features relatively more low-skilled workers in this case. If the planner has the instruments to enforce formalization, we find that precluding informal activities yields a 3% welfare loss while formalizing these activities yields a 13% welfare gain. These results provide novel insights into the design of tax and transfer policies in economies with large informal sectors.

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Abstract: Tax perturbation methods rely on the sufficiency of local conditions to describe the behavior of agents in a taxation context. For this to be the case agents' choices must be `well behaved'. We show that this requirement may be too restrictive when the Spence-Mirrlees' condition (SMC) does not hold, once budget sets are endogenous in an optimal tax problem. In a quasi-linear version ofMirrlees' (1971) model without the SMC, we show that the optimal tax system promotes income segregation when agents are allowed to be indifferent between two different bundles. This type of indifference is generically ruled out under the tax perturbation method because of the sufficiency of local incentive constraints. Moreover, when this condition is not imposed, aggregate choices are still required to be well-behaved, which we show may not be the case at the optimum when global constraints are explicitly taken into account. 

Abstract: We revisit classic optimal tax theory while recognizing that most people live in multi-person households. We show how optimal tax formulae must be adjusted and highlight the usefulness of non-rate policies along the lines of Moore and Slemrod (2021). We show, among other things, that the presence of household 'internalities' makes lump-sum taxes seldom optimal, and that separability of preferences no longer suffices for Atkinson and Stiglitz's (1976) uniform tax result.We explore the `behavioral' nature of collective households comprised of fully rational agents to draw a parallel to Farhi and Gabaix's (2019) seminal work.