Working Papers
Working Papers
Cash Transfer Policies in Developing Countries: Universal or Targeted? (new version!!) (with Pedro Ferreira and André Valério)
We study the short- and long-term effects of Universal Basic Income programs - a uniform transfer to every individual in society - in the context of a developing economy and compare this policy with other schemes that condition the transfer on household characteristics such as income and education. We construct a dynastic heterogeneous-agent model, featuring uninsurable idiosyncratic risk, investment in physical and human capital, and choice of labor effort. We calibrate the model to Brazilian data and introduce a UBI transfer equivalent to roughly 4.5% of average household income. We find that, over the short run, this policy alleviates poverty and increases welfare, especially for the poor. Over time, however, income falls and poverty and inequality increase as fewer people stay in school, labor supply decreases, and savings fall. We then explore the consequences of an equivalent transfer that is both subject to means testing and requires recipients to enroll their children in school. This policy outperforms the UBI in several dimensions, increasing overall income, reducing poverty and inequality, and improving welfare. This result is robust to varying the magnitude of the cash transfer. We then investigate which aspects of the CCT make it so effective, and find that the schooling conditionality is crucial in ensuring its long- and even short-run success.
This is a comprehensive review of "Universal Basic Income in Developing Countries: Pitfalls and Alternatives".
This paper studies the distributive effects of banking sector losses on household consumption and welfare. Using data from the Consumer Expenditure Survey, we document that in response to declines in bank equity returns the consumption of low-income households decreases by roughly twice as much as the average. To understand this result, we develop a heterogeneous-agent model featuring rich income and portfolio heterogeneity and a banking sector subject to financial frictions. The model matches the empirical inequality in consumption responses following a shock to banks’ asset returns. Households at the bottom of the income distribution suffer from losses in labor earnings and from an increase in the cost of borrowing. In contrast, high-income consumers can take advantage of temporarily low asset prices and high future returns and increase their savings to sustain a higher consumption in the medium term. In fact, a fraction of households benefits from distress in the banking sector. A debt-financed asset purchase program can improve welfare, especially for low-income individuals, by dampening the increase in credit spreads and stabilizing investment.
I study how financial development promotes competition. I extend the model of Atkeson and Burstein 2008 o include dynamic capital accumulation and financial frictions. Capital market imperfections interact with endogenous misallocation from market power and variable markups. Calibrating the model with data from Chilean manufacturing firms, I show that improved access to external finance reduces industry concentration and both the level and dispersion of markups. These effects explain over half of the total productivity gains from financial development and are especially pronounced in financially underdeveloped economies. Models that ignore markup variation thus underestimate the benefits of improving capital markets.
This paper examines the impact of net overseas migration (NOM) on residential property markets using annual, neighborhood-level data for Australia. We leverage an instrumental variable approach based on historical immigrant settlement patterns to isolate plausibly exogenous variation in migration flows. We find that a 1% increase in NOM, as a share of the local population, raises unit rents and prices by 5.0% and 1.3%, respectively, and increases house rents by 3.6%. These effects are more pronounced in areas with low rates of dwelling approvals, suggesting that housing supply constraints amplify the response of prices and rents to migration. In contrast, house prices decline by 1.3%, a pattern concentrated in older neighborhoods and consistent with displacement dynamics, for which we present supporting evidence.
We propose a novel methodology for solving Heterogeneous Agents New Keynesian (HANK) models with aggregate uncertainty and the Zero Lower Bound (ZLB) on nominal interest rates. Our solution strategy combines the sequence-state Jacobian methodology in Auclert et al. (2021) with a tractable structure for aggregate un-certainty by means of a two-regimes shock structure. Using our methodology, we show that: 1) in the presence of the ZLB, a dichotomy emerges between the economy’s impulse responses under aggregate uncertainty against the deterministic case; 2) aggregate uncertainty amplifies downturns at the ZLB, and household heterogeneity increases the strength of this amplification; 3) the impact of forward guidance is stronger when there is aggregate uncertainty.
We develop a heterogeneous-agent, overlapping-generations model with nonhomothetic preferences that considers the most prominent proposed explanations for the decline in the natural rate of interest r* in the United States. The model accounts for a 4.3 percentage point decline between 1965 and 2015, within the range of empirical estimates. The trend is largely driven by changes in productivity growth, demographics, inequality, and the labor share. Although demographic forces will keep exerting downward pressure on r*, we expect a trough to be reached around 2030, driven by the rise in public debt. Furthermore, our probabilistic analysis suggests that a reversion toward the levels of r* seen in the past is extremely unlikely. Finally, we find that the impact of policy variables such as taxes and social security can be considerable.
How does bankruptcy protection affect household balance sheet adjustments and aggregate consumption when credit tightens? Using a tractable model of unsecured consumer credit we quantify the trade-off between the insurance and the creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact. This is because it allows borrowers to sustain consumption against severe financial distress. However, by leading to consumers' exclusion from the credit market for a certain period, bankruptcy also reduces their ability to smooth consumption over time, implying a slower recovery. The bankruptcy code establishes how costly it is to default, and, thus, plays a crucial role in determining consumers' bankruptcy decisions and in shaping consumption dynamics. We quantify that the 2005 BAPCPA reform, by making filing for bankruptcy more costly, worsened the negative welfare effects of the subsequent credit tightening.
Tax Cuts for the Wealthy, Mortgages for the Poor, and the Makings of a Housing Crisis for All (with Chris Gibbs and James Graham)
The Long-Term Effects of Conditional Cash Transfers on Child Labor and School Enrolment (with Pedro Cavalcanti Ferreira) - Economic Inquiry, May 2017.