Research

Abstract: Efforts to end offshore financial secrecy have improved transparency and strengthened tax enforcement, yet their broader economic consequences remain poorly understood. This paper studies how the 2016 Panama Papers leak, which raised the probability of detecting offshore wealth, affected firms' capital accumulation and growth. I find that Colombian firms owned by individuals using offshore vehicles increase retained earnings after the leak and use this additional liquidity to expand their physical capital. Sales and profits rise within two years, indicating a real expansion in economic activity rather than a mere reallocation of assets. These responses are larger among owner-managed firms, where owners have greater influence over firm decisions. The effects are economically meaningful: the additional capital accumulated by exposed firms is equivalent to between 0.25 and 1 percent of value added in the affected sectors. These findings suggest that offshore tax enforcement can stimulate domestic investment and firm growth, with benefits that extend beyond improved tax compliance.

Abstract: This paper studies how value-added taxes (VAT) distort firms’ labor outsourcing decisions and the implications for in-house employment and firm performance. To do so, we use a unique input-output dataset from Chile and a matching difference-in-differences design that exploits variation from a tax policy reform that increased VAT on professional service purchases.  We first document a partial pass-through of VAT into prices net of taxes charged by professional service providers. In response to these higher input costs, firms reduce outsourcing of professional services along both extensive and intensive margins and substitute toward in-house employment. We find no effects of this reallocation on firms’ growth or efficiency. Overall, our findings provide new evidence on the incidence of VAT on firms' make-or-buy decisions, challenging the traditional neutrality of VAT under full input tax crediting.

Abstract: We examine the relationship between inequality and state capacity, measured with tax collection. Contrary to traditional models that emphasize the redistributive role of taxation, we focus on its role in providing public goods that help develop markets, increasing productivity (e.g. enforcement of property rights, coordination, roads, electricity). We build a simple model of public good provision where landowners decide whether or not to comply with property taxes taking into account: (i) that government expenditure increases property values, and (ii) their expectation of the punishment when evading taxes. We validate the model empirically, using data from Colombian municipalities between 1923 and 1960, in two ways. First, we use detailed land values' data from cadastres available for a subsample of municipalities and the model's structure to predict tax revenues and compare them with actual revenues. Second, we show evidence in favor of the main model predictions: land concentration is positively correlated with tax revenues per capita, and negatively correlated with the average fiscal cost of collecting one peso. These correlations are robust to controlling for measures of potential sources of omitted variable bias. Moreover, they are stronger for places that stand more to gain from the development of markets.

Abstract: This paper studies market power in Mexican industries over the period 2008-23 using establishment-level data from the Mexican Economic Census. We document a substantial increase in the average price markup over marginal costs, from 12 percent in 2008 to 27 percent in 2023. The sources of this increase vary across sectors and time: services, particularly wholesale and retail trade, account for most of the increase in markups until 2018, while manufacturing, led by transportation equipment and export-oriented industries, plays a larger role in more recent years. Rising markups in services are associated with greater local labor market concentration, suggestive of increasing monopsony power. In manufacturing, markup growth is linked to higher capital expenditure, consistent with firms sustaining larger markups to recover higher fixed costs. Moreover, rising markups in manufacturing are positively associated with total factor productivity, whereas in services they are uncorrelated with productivity. Overall, these findings suggest that while market power has increased over time, its underlying drivers have shifted from monopsonistic power in labor markets to higher fixed costs, with more favorable efficiency implications in recent years.