Abstract: This paper analyzes the distributional impacts of structural reforms and their dynamics based on a full general equilibrium model. I establish a tractable framework with simple heterogeneity in households and measure the short- to medium-term distributional effects of the reforms by the Gini coefficient as well as the labor share in GDP. The primary drivers behind the changes in inequality are also identified. Key findings are as follows. First, each structural reform measure has quantitatively and qualitatively different impact on inequality. Second, the distributional effects of reforms vary over time horizons. Third, well-designed structural reform packages not only boost economic performance but also contribute to income equality in the long run while they can exacerbate inequality problem in the immediate aftermath of the reforms. These results imply that policymakers can smooth the short-term disequalizing effects by proper sequencing and enhance the political feasibility of structural reforms.
2. "Structural Reforms in Granular Economies," with Fabio Ghironi, first draft: April 2018; this draft: April 2019. Appendix
Abstract: This paper investigates how granularity affects the outcome of market reforms intended to reduce concentration and enhance competition. We use a baseline model of endogenous entry and exit by heterogeneous producers to show that the shape of the distribution of firm size matters for both the short- and long-term effects of product market reform. In turn, these affect the extent to which the economy is granular by altering the equilibrium number and size distribution of operating firms. When the economy is granular, reforms yield larger long-run gains, but at the cost of more short-run pain, than in a non-granular environment. By facilitating competitor entry that puts upward pressure on labor costs, reforms initially cause the cutoff productivity for producer activity to rise, and the number of operating firms to fall. As a result, the economy endogenously becomes more granular (market concentration rises) in the immediate aftermath of reforms. However, the number of producers gradually recovers, making the economy less granular over time. In the presence of idiosyncratic shocks, aggregate volatility generated by shocks to the largest producers temporarily rises before eventually decreasing in the long run. We conclude by providing suggestive empirical evidence in support of our theoretical results in cross-section regressions and a panel VAR for OECD countries.