Research
Research
The Heterogeneous Response of Consumption to Income Shocks: Semi-structural and Quasi-experimental Estimates from India [Job Market Paper] [slides]
Revise and resubmit at The B.E. Journal of Macroeconomics.
A large literature documenting heterogeneity in the marginal propensity to consume (MPC) has emerged for developed economies. Employing semi-structural methods on a rich household panel data from India, I shed light on the extent of heterogeneity in MPC in an emerging economy. I find that while the overall MPC is 0.27 over the three months following a transitory income shock there is substantial variation across different subgroups: the MPC ranges from 0.23 for urban to 0.57 for rural households, from 0.14 for high-income to 0.41 for low-income households, and from 0.18 for higher-educated to 0.32 for households with lower education. Using the same data and rainfall shocks as a source of exogenous variation in transitory income, I estimate a rural MPC of 0.53 lending support to my semi-structural estimates. These results are crucial for policymakers when formulating monetary and fiscal policies and contribute to more accurate economic models for predicting and explaining economic phenomena.
Early Urbanization and Regional Disparities within Countries (with Areendam Chanda and Dachao Ruan) [slides]
We explore the extent to which present day economic development at the subnational level is associated with urbanization in the mid-nineteenth century. Drawing on historical city data, we construct a variety of measures capturing city presence and populations in 1850 for 1,954 current first level administrative regions covering 128 countries. We find strong evidence of persistence in regional development that increases with city size. Using 2015 nighttime lights data as our baseline estimates, the presence of an 1850 city with a population between 5,000-20,000 is associated with a 6% higher GDP per capita, while a city with 100,000 population or more is associated with a 30% increase. Presence of the largest national city in 1850 confers a significant additional advantage to the region even 165 years later. Human Capital, as captured by the historical presence of universities is also important, but the independent effect of early urbanization remains.
Empirics of Household Expectations and Consumption Behavior: Insights from India (with Areendam Chanda) [slides]
Expectations play a central role in inter-temporal models in macroeconomics. In this paper, we exploit granular data from India to examine the nature of expectation formation, biases, and effects and shocks on household consumption. We document that households in India tend to be relatively more optimistic about future conditions; there is significant heterogeneity, with urban and high-income households being more so. However, when looking at forecast errors, we show that they may be “under-optimistic”. The research also documents significant heterogeneity in the effects of optimistic vs pessimistic households. Lastly, we show that expectation shocks affect consumption above and beyond income shocks.
Institutional Quality and the Propagation of Political Uncertainty Shocks: Evidence from 129 Countries
Accepted for publication in the Journal of Comparative Economics.
Countries exposed to similar political uncertainty shocks often experience sharply different macroeconomic outcomes. This paper asks whether institutional quality helps explain this cross-country heterogeneity. Using panel data for 129 countries over 2000–2022, we estimate a two-way fixed effects model in which the World Uncertainty Index (WUI) is interacted with the Worldwide Governance Indicators (WGI). The interaction is positive and economically large: countries with stronger governance experience substantially smaller growth losses when measured political and policy uncertainty rises. For a one-unit increase in the WUI, an extreme movement comparable to the largest national uncertainty episodes on record, countries at +1 and −1 on the standardized WGI scale are estimated to differ in growth by about 3.5 percentage points; a more routine one-standard-deviation WUI shock implies a gap of roughly 0.6 percentage points. The mechanism evidence is strongest for financing conditions, with suggestive evidence on investment and statistically imprecise evidence on productivity. In the baseline local-projection profile, the cumulative differential rises through roughly years eight to nine, then fades and is statistically imprecise by year ten; the exact late-horizon shape is sensitive to excluding outcome paths that span COVID-19. Complementary IV exercises yield broadly consistent but less precise estimates, while descriptive event studies show heterogeneous crisis patterns and the effect is concentrated in large global uncertainty episodes. The results point to institutional quality as an important source of cross-country heterogeneity in the macroeconomic transmission of political uncertainty.
Son Preference and the Allocation of Household Consumption