Draft coming soon.
Abstract: This paper provides evidence that inequality directly affects structural change through a luxury/necessity mechanism and through marketization of home production via an opportunity cost mechanism. To assess the importance of these mechanisms in addition to the reverse effects of structural change on inequality, I build a model with heterogeneous production intensities, nonhomothetic CES preferences across sectors, and within-sector consumption as a composite of market and home. Focusing on the U.S. 1980-2016 and combining estimated demand parameters from household level data with calibrated technology parameters, the quantitative model delivers three main results: (i) direct effects of inequality account for 46% of the increase in the high-skill services share primarily through the luxury mechanism. (ii) for low-skill services, the necessity mechanism dominates the marketization mechanism, explaining the minimal change in its share. (iii) there are amplifying interaction effects between structural change and inequality. Further, investigating observed changes in inequality, I find that the slowdown in inequality since the early 2000s lowered the growth of high-skill services by 23%, whereas the decline in tax progressivity raised the high-skill services share (by up to 0.5 pp) and lowered the low-skill services share (by up to 0.3 pp).
Draft coming soon.
While my job market paper points to significant effects of inequality for structural change in the U.S., the quantitative relevance remains unclear for low- and middle-income countries. How important are the luxury/necessity and opportunity cost mechanisms in economies where the services share has substantial room to grow? A quantitative answer requires estimating demand parameters using micro and macro data from these countries, as preferences and home production patterns likely differ substantially from the U.S. experience. To this end, this project draws on sectoral expenditure data from the World Bank LSMS household modules for Tanzania and the Mexican National Survey of Household Income and Expenditure (ENIGH) as well as other data sources.
Supported by a PhD research Grant from the research initiative 'Structural Transformation and Economic Growth' (STEG).
Draft coming soon.
Sectoral heterogeneity in energy and emission intensities implies that structural transformation directly shapes aggregate energy demand and emissions. Simultaneously, carbon pricing induces sectoral reallocation by differentially affecting energy-intensive industries. Thus, structural change alters the economy's carbon footprint, while carbon taxes accelerate or redirect structural transformation itself. Key questions emerge: Does the shift toward modern energy-intensive services (data centers, AI, crypto) offset efficiency gains and reallocations from traditional manufacturing? Do carbon taxes reinforce or counteract underlying patterns of structural change? How does this feedback loop affect the optimal design of climate policy?