Fiscal consolidations that cause deeper recessions do not raise inequality more; their effect on inequality is determined by which incomes they cut. Using narratively identified consolidation shocks for sixteen OECD countries over 1978–2014, I document that tax-based consolidations lower pre-tax income inequality while expenditure-based consolidations raise it; within the spending side, transfer cuts raise inequality and government-consumption cuts lower it. A worker–capitalist HANK model reduces the asymmetry to a formula: the response of any inequality statistic splits into an instrument-invariant general-equilibrium term, proportional to the output loss and negative because a recession lowers profits at the top while unemployment insurance protects the bottom, and a direct-incidence term that only transfer cuts activate. Per euro of revenue the direct term is an order of magnitude larger, so a spending plan raises inequality once transfers exceed about a tenth of its revenue, far below the half observed in practice. The distributional sign is governed by a plan’s composition, in particular its transfer share, so the spending/revenue label carries no distributional information.

Revise and Resubmit, Journal of Macroeconomics

I decompose annual changes in the public debt-to-GDP ratio into fiscal, real-growth, inflation, and stock-flow-adjustment channels for 193 countries over 1801–2024, using the Global Macro Database. Across 329 large debt-reduction episodes, budget surpluses are almost never the proximate driver: the median episode reduces debt by 30 points of GDP while the government still runs cumulative deficits. Reductions are delivered by growth (the dom- inant driver in 50% of advanced-economy episodes) and by inflation (dominant in 59% of emerging-market episodes); fiscal-led reductions account for under 10% everywhere. Splitting the budget balance into a primary and an interest component shows that primary surpluses are often run, but interest bills absorb them, so the net reduction still comes from favourable denominators. The inflation channel and the incidence of negative real interest rates—a financial-repression proxy—were large in the 1940s–1970s, collapsed for advanced economies during the Great Moderation, and revived after 2008, reaching 75% of advanced-economy years in 2020–2024. To separate anticipated from surprise inflation as liquidation mechanisms, I combine panel Fisher regressions with panel local projections [Jordà, 2005]: the Fisher pass-through from inflation to nominal rates rose from about 0.08 to 0.45 for advanced economies across the 1985 break, so that anticipated inflation liquidates much less debt (though the pass-through stays below one, so not zero), while local projections show that the cumulative debt response to surprise inflation does not weaken (and strengthens for EMDEs). The decline of the inflation channel is thus a decline in the liquidation of anticipated inflation, not of inflation surprises.

Co-authored with Aurélien Eyquem and Céline Poilly. 

We study how sovereign risk fluctuations propagate to the real economy when banks hold long-term public debt. Using Italian data, we decompose spread-implied default probabilities into a systematic debt-driven component and an exogenous component capturing shifts in perceived sovereign risk. We embed this decomposition in a quantitative New-Keynesian model with constrained financial intermediaries and endogenous default risk, solved to a third order and estimated by simulated method of moments. Higher perceived default risk lowers sovereign bond prices, weakens bank net worth, tightens intermediary constraints, and depresses investment and output. Because default risk also responds to debt dynamics, the downturn amplifies sovereign risk through a sovereign-bank loop. We find that sovereign risk shocks account for about one fifth of output fluctuations and roughly one third of welfare costs at the business cycle frequency. Fiscal policy can mitigate this loop, but only by moving distortionary taxes. Consumption-tax rules deliver the largest welfare gains, whereas deficit- based rules can generate excessive tax volatility and large welfare losses.

Co-authored with Boris Chafwehe and Francesca Diluiso.

We build a E-HANK model, an Environmental-Heterogeneous Agent New Keynesian model with an energy sector, distinguishing clean from dirty energy and allowing households to adopt a costly clean energy technology. We use this framework to study the transmission of fossil energy shocks and the effectiveness of fiscal, monetary, and climate policy responses. Clean technology adoption acts as a stabilizing channel, dampening inflation and output losses relative to an economy with no adoption or only fossil fuels available. Energy price subsidies shield fossil energy users but weaken adoption incentives, creating a policy trade-off that (un)targeted transfers avoid while still insulating households. An aggressive monetary response yields small, short-lived inflation gains at a large output cost, and slows down adoption. Recycling carbon revenues into clean technology subsidies rather than lump-sum rebates has the potential to green the economy and dampens the inflationary impact of energy shocks, but comes at the cost of shifting the burden of higher energy prices on the households least able to adopt.