Research Papers

We study the macroeconomic and social effects of Universal Basic Income (UBI) programs in a developing economy, comparing them with policies that condition cash transfers on household characteristics (CCT). We construct a dynastic heterogeneous-agent model with human capital investment and choice of labor effort and calibrate it to Brazilian data. In the short run, UBI alleviates poverty and increases the welfare of the poor. Over time, however, income falls and poverty and inequality increase since investments in physical and human capital decrease along with labor supply. In most dimensions, CCT programs outperform UBI policies, largely due to school enrollment requirements.

In many countries, the regulations governing public and private pension systems, hiring procedures, and job contracts differ. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a life-cycle model with three sectors - private formal, private informal and public - and endogenous retirement. In a model calibrated to Brazil, we quantitatively assess the long-run effects of reforms being discussed and implemented across countries. Among them, we study the unification of pension systems and increasing the minimum retirement age. We find that these reforms affect the decision to apply to a public job, the profile of savings over the life cycle, and informality. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit.

This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model with multiple sectors with market power. Industries are connected through input-output linkages, and changes in taxation are not confined within industries. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% increase in GDP. Due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall.

This article investigates the economic effects of carbon taxation, using a multi-sector general equilibrium model with intersectorial input-output linkages and greenhouse gas emissions. We construct a novel and comprehensive sector-level dataset incorporating all relevant sources of greenhouse gas emissions and calibrate the model for Brazil. The carbon price is determined to meet the country's annual greenhouse gas emissions pledge under the Glasgow Climate Pact until 2030. In the presence of production networks, the initially concentrated tax shocks propagate throughout the economy, causing widespread variations in relative input prices. As expected, sectors heavily reliant on taxed pollutant resources, such as Energy and Transport, experience significant declines in production. However, some sectors that are not heavily taxed directly may experience a steep price increase and output fall because many of their inputs are highly pollutant and so intensely taxed. The extent of GDP losses depends on the deforestation scenario, ranging from 0.25% (reflecting the record low deforestation levels of 2012) to 5.71% (corresponding to the 2022 rates). The inclusion of Agriculture \& Livestock in the taxation leads to considerably smaller GDP losses.

We study the impact of the different stages of human capital accumulation on the evolution of labor productivity in a model calibrated to the U.S. from 1961 to 2008. We add early childhood education to a standard continuous time life cycle economy and assume complementarity between educational stages. There are three sectors in the model: the goods sector, the early childhood sector and the formal education sector. Agents are homogenous and choose the intensity of preschool education, how long to stay in formal school, labor effort and consumption, and there are exogenous distortions to these four decisions. The model matches the data very well and closely reproduces the paths of schooling, hours worked, relative prices and GDP. We find that the reduction in distortions to early education in the period was large and made a very strong contribution to human capital accumulation. However, due to general equilibrium effects of labor market taxation, marginal modification in the incentives for early education in 2008 had a smaller impact than those for formal education. This is because the former do not decisively affect the decision to join the labor market, while the latter do. Without labor taxation, incentives for preschool are significantly stronger. 

This article investigates the impact on the U.S. economy of making health care more affordable. We compare health care cost reductions with the Patient Protection and Affordable Care Act (ACA) using a rich life cycle general equilibrium model with heterogeneous agents. We evaluate a wide range of cost reductions ranging from 0.64% (realistic and feasible) to 29.5% (equivalence with OECD). Our results show that the ACA is more effective in reducing uninsured population than all cost reductions considered. This result holds throughout the life cycle and for the most fragile part of the population: the poorest, the less educated, and those with bad health. Realistic and feasible cost reductions are less welfare improving than the ACA. The increase of welfare induced by the reform is around 7.8 times higher than the increase provided by cost reductions. Besides, the poorer are more benefited than the richer after the reform, while the opposite occurs after cost reductions. Finally, to obtain the same welfare increase of the ACA, medical costs have to decrease by 5.21%, a very hard task. These results provide support for the ACA against opponents who might present cost reductions as alternatives. 

We develop an intertemporal model of the international economy, where tradeable intermediate goods are produced with capital, labor and hydrocarbons, and used in the production of non-tradeable consumption and investment goods. The model is calibrated to 176 countries, grouped according to their characteristics. We conduct simulations about key events that are currently reshaping the world e.g., fracking and China's new model of development. The model reproduces closely the recent fall in oil prices and delivers results about the impact on global output and consumption, but also about the propagation to different countries through terms of trade and capital accumulation. 

This paper investigates the long-term effects of conditional cash transfers on school attainment and child labor. To this end, we construct a dynamic heterogeneous agent model, calibrate it with Brazilian data, and introduce a policy similar to the Brazilian Bolsa Família. Our results suggest that this type of policy has a very strong impact on educational outcomes, sharply increasing primary school completion. The conditional transfer is also able to reduce the share of working children from 22% to 17%. We then compute the transition to the new steady state and show that the program actually increases child labor over the short run, because the transfer is not enough to completely cover the schooling costs, so children have to work to be able to comply with the program's schooling eligibility requirement. We also evaluate the impacts on poverty, inequality, and welfare. (JEL O11, I25, J24) 

Life cycle general equilibrium models with heterogeneous agents have a very hard time reproducing the American wealth distribution. A common assumption made in this literature is that all young adults enter the economy with no initial assets. In this article, we relax this assumption – not supported by the data – and evaluate the ability of an otherwise standard life cycle model to account for the U.S. wealth inequality. The new feature of the model is that agents enter the economy with assets drawn from an initial distribution of assets. We found that heterogeneity with respect to initial wealth is key for this class of models to replicate the data. According to our results, American inequality can be explained almost entirely by the fact that some individuals are lucky enough to be born into wealth, while others are born with few or no assets.

This article studies the impact of education and fertility in structural transformation and growth. In the model there are three sectors, agriculture, which uses only low-skill labor, manufacturing, that uses high-skill labor only and services, that uses both. Parents choose optimally the number of children and their skill. Educational policy has two dimensions, it may or may not allow child labor and it subsidizes education expenditures. The model is calibrated to South Korea and Brazil, and is able to reproduce some key stylized facts observed between 1960 and 2005 in these economies, such as the low (high) productivity of services in Brazil (South Korea) which is shown to be a function of human capital and very important in explaining its stagnation (growth) after 1980. We also analyze how different government policies towards education and child labor implemented in these countries affected individuals? decisions toward education and the growth trajectory of each economy. 

Este artigo incorpora educação infantil a um modelo de equilíbrio geral dinâmico para estudar a redução acelerada dos diferenciais educacionais entre países da África Subsaariana e países europeus em um período - 1960 e 2010 – em que as diferenças de renda per capita entre os dois grupos aumentaram. Nesta economia existem dois setores (o setor educacional e o setor de bens ) e consumidores homogêneos que escolhem consumo, educação formal e educação infantil. O modelo é calibrado para diversas economias e utilizado para medir, em equilíbrio, educação infantil e custos educacionais. Mostramos que as distorções educacionais caíram no período e que pré-escola aumentou sensivelmente, embora os países subsaarianos em 2010 não alcançassem a educação infantil que os europeus tinham em 1960. O principal resultado em termos de política educacional é que políticas de incentivo à educação infantil são mais eficazes em impactar a renda per capita do que políticas de incentivo à educação formal, de forma que o desincentivo para a educação infantil dos países subsaarianos ajuda a entender a parte da divergência da renda entre os dois grupos de países. Da mesma forma, produtividade total dos fatores e expectativa de vida explicam boa parte desta divergência de renda. 

We study the impact of distortions in the investment goods sector on aggregate total factor productivity (TFP). We develop a two-sector neo-classical growth model in which TFP in the capital goods sector relative to TFP in the consumption sector is inversely related to the price of investment relative to consumption, so that we use relative prices to measure TFP in the investment goods sector. The model is calibrated to Brazil and we nd that distortions in the investment goods sector may explain most of the decline in Brazilian TFP relative to the United States since the mid-1970s. 

Due to several policy distortions, including import-substitution industrialization, widespread government intervention and both domestic and international competitive barriers, there has been a general presumption that Latin America has been much less productive than the leading economies in the last decades. In this paper we show, however, that until the late seventies Latin American countries had high productivity levels relative to the United States. It is only after the late seventies that we observe a fast decrease of relative TFP in Latin America. We also show that the inclusion of human capital in the production function makes a crucial di¤erence in the TFP calculations for Latin America.

We develop and calibrate a model where differences in factor endowments lead countries to trade different goods, so that the existence of international trade changes the sectorial composition of output from one country to another. Gains from trade reflect in total factor productivity. We perform a development decomposition, to assess the impact of trade -and of the elimination of barriers to trade- on measured TFP. In our sample, the median size of the effect of going from no trade to free trade is about 6.5% of output, with a mean of 17% and a maximum of 89%. Also, the model predicts that changes in the terms of trade cause a change of productivity, and that effect has an average elasticity of 0.73.

This article investigates the causes in the reduction of labor force participation of the old. We argue that the changes in social security policy, in technology and in demography may account for most of the changes in retirement over the second part of the last century in the U.S. economy. We develop a dynamic general equilibrium model with endogenous retirement that embeds social security legislation. The model is able to match very closely the increase in the retirement rate of males aged 65 and older. It also quantifies the isolated impact on retirement and on the solvency of the social security system of the different factors. The model suggests that technological and demographic changes had a strong influence on retirement, so that it would have increased significantly even if the social security rules had not changed. However, as the latter became much more generous in the past, changes in social security policy can account not only for a sizeable part of the expansion of retirement, but also for the most of the observed increase in the social security expenses as a share of GDP.

This paper studies the impact of HIV/AIDS on per capita income and education. It explores two channels from HIV/AIDS to income that have not been sufficiently stressed by the literature: the reduction of the incentives to study due to shorter expected longevity and the reduction of productivity of experienced workers. In the model individuals live for three periods, may get infected in the second period and with some probability die of Aids before reaching the third period of their life. Parents care for the welfare of the future generations so that they will maximize lifetime utility of their dynasty. The simulations predict that the most affected countries in Sub-Saharan Africa will be in the future, on average, thirty percent poorer than they would be without AIDS. Schooling will decline in some cases by forty percent. These figures are dramatically reduced with widespread medical treatment, as it increases the survival probability and productivity of infected individuals.

We develop and calibrate a model where differences in factor endowments lead countries to trade intermediate goods, and gains from trade reflect in total factor productivity. We perform several output and growth decompositions, to assess the impact that barriers to trade, as well as changes in terms of trade, have on measured TFP. We find that for very poor economies gains from trade are large, in some cases representing a doubling of GDP. Also, that an improvement in the terms of trade - by allowing the use of a better mix of intermediate inputs in the production process - translates into productivity growth.

This paper examines structural changes that occur in the total factor productivity (TFP) within countries. It is possible that some episodes of high economic growth or economic decline are associated with permanent productivity shocks; therefore, this research has two objectives. The first one is to estimate the structural changes present in TFP for a sample of 77 countries between 1950(60) and 2000. The second one is to identify possible explanations for breaks. Two sources were analyzed: (i) episodes in political and economic history; (ii) changes in international trade - a measure of absorption of technology. The results suggest that about one-third of the TFP time-series present at least one structural break. Downwards breaks are more common, indicating that after a break the TFP has much difficulty to recover. When we investigated factors related with structural change, developed countries presented a break near the first oil shock while the developing countries' breaks are more spread along the decades. Thus, external strikes seem to be more relevant for developed countries. However, for each country and break date, it was possible to find an event close to the break date endogenously detected. Last, the relevance of international trade, measured by trade share percentage of GDP, seems to be limited to explain abrupt changes in TFP.

This article presents a group of exercises of level and growth decomposition of output per worker using cross-country data from 1960 to 2000. Its shown that at least until 1975 factors of production ( capital and education) were the main cause of output dispersion and that productivity variance was considerably smaller than in late years. Only after this date the prominence of TFP started to show up in the data, as the majority of the literature have found. The growth decomposition exercises showed that the reversal of relative importance of TFP vis-à-vis factors is explained by the very good (bad) performance of detrended TFP of fast (slow) growing economies. Although growth in the period, on average, is mostly due to factors accumulation, its variance is explained by productivity.

This article studies the interplay between fiscal rules, public investment and growth in Brazil. It is investigated if it would make sense to raise public investment and, if so, under which fiscal rule it is best to do it -- whether through tax financing, debt financing, or a reduction of public consumption. We construct and simulate a competitive general equilibrium model, calibrated to Brazilian economy, in which public capital is a component of the production function and public consumption directly affects individuals' well-being. After assessing the impacts of alternative fiscal rules, the paper concludes that the most desirable financing scheme is the reduction of public consumption, which dominates the others in terms of output and welfare gains. The model replicates the observed growth slowdown of the Brazilian economy when we increase taxes and reduce public capital formation to the levels observed after 1980 and shows that the growth impact of the expansion of tax collection in Brazil was much larger than that of public investment compression.

In a widely cited paper, Young (1995) showed that the East Asian miracles (Hong Kong, Korea, Singapore and Taiwan) grew mostly through input accumulation during the period 1966-1990. Using data for 83 countries taken from the Penn World Table, version 6.1, and Barro and Lee (2000), we use a common methodology in order to compare the growth performance of the East Asian miracles with the rest of the world. We find that, even though the TFP growth rates of the four East Asian miracles were not remarkable in absolute values, they were very high in relative terms. We argue that, since Young (1995) focused only on the four East Asian miracles, he did not notice that 1966-1990 was a period of particularly low TFP growth and particularly high factor accumulation in the world. Despite the fact that they had high rates of physical capital accumulation, the distinguishing feature of these miracles was their relative productivity growth performance.

This article studies the productive impact of infrastructure investment in Brazil. Public-capital expenditures in the country have decreased continuously over the last two decades, and this paper shows the significant impact this has had on infrastructure stocks. Cointegration analysis is used to investigate the long-run association between output and infrastructure, the results being then used to study the short-run dynamic of these variables. Whether in the short or long run, the productive impact of infrastructure was found to be relevant. Other group of simulations studies the impact of expanding capital expenditures through debt finance on debt to GDP ratio as well as on public cash flow and net worth.

Published, “Fiscal Policy, Stabilization and Growth,” edited by Perry, Serven and Suescún, World Bank, 2007.

We study the macroeconomic effects of international trade policy by integrating a Hecksher-Ohlin trade model into an optimal-growth framework. The model predicts that a more open economy will have higher factor productivity. Furthermore, there is a "selective development trap," an additional steady state with low income, to which countries may or may not converge, depending on policy. Income at the development trap falls as trade barriers increase. Hence, cross-country differences in barriers to trade may help explain the dispersion of per-capita income observed across countries. The effects are quantified and we show that protectionism can explain a relevant fraction of TFP and long-run income differentials across countries.

This paper investigates the nature of income inequality across nations. Several exercises, such as variance decompositions, simulations and counter-factual analyses are performed. The picture that emerges is one where countries grew in the past for different reasons, which should be an important ingredient in policy design. Although there is not a single-factor explanation for the difference in output per-worker across nations, productivity differences can explain a considerable portion of income inequality, followed by distortions to\ capital accumulation and then by human capital accumulation.

This article studies the impact of longevity and taxation on life-cycle decisions and long-run income. Individuals allocate optimally their total lifetime between education, working and retirement. They also decide at each moment how much to save or consume out of their income, and after entering the labor market how to divide their time between labor and leisure. The model incorporates experience-earnings profiles and the return-to-education function that follows evidence from the labor literature. In this setup, increases in longevity raises the investment in education - time in school - and retirement. The model is calibrated to the U.S. and is able to reproduce observed schooling levels and the increase in retirement, as the evidence shows. Simulations show that a country equal to the U.S. but with 20% smaller longevity will be 25% poorer. In this economy, labor taxes have a strong impact on the per capita income, as it decreases labor effort, time at school and retirement age, in addition to the general equilibrium impact on physical capital. We conclude that life-cycle effects are relevant in analyzing the aggregate outcome of taxation.

This paper studies the relationship between industrial structure and the extent of trade protection granted to Brazilian manufacturing industries during the 1988-1994 trade liberalization episode. Using a panel data set covering this period, we find that even in an environment in which a major regime shift has been introduced, more concentrated sectors have been able to obtain policy advantages, that lead to a reduction in international competition. The importance of industry structure appears to be substantial: In our baseline specification, an increase in concentration by 20% leads to an increase in protection by 5%-7%.

This paper studies the long-run impact of HIV/AIDS on per capita income and education. We introduce a channel from HIV/AIDS to long-run income that has been overlooked by the literature, the reduction of the incentives to study due to shorter expected longevity. We work with a continuous time overlapping generations model in which life cycle features of savings and education decision play key roles. The model is calibrated for a cross-section of countries. The simulations predict that the most affected countries in Sub-Saharan Africa will be in the future, on average, a quarter poorer than they would be without AIDS, due only to the direct (human capital reduction) and indirect (decline in savings and investment) effects of life-expectancy reductions. Schooling will decline on average by half. These findings are well above previous results in the literature.

This paper explores the distortions on the cost of education, associated with government policies and institutional factors, as an additional determinant of cross-country income differences. Agents are finitely lived and the model takes into account life-cycle features of human capital accumulation. There are two sectors, one producing goods and the other providing educational services. The model is calibrated and simulated for 89 economies. We find that human capital taxation has a relevant impact on incomes, which is amplified by its indirect effect on returns to physical capital. Life expectancy plays an important role in determining long-run output: the expansion of the population working life increases the present value of the flow of wages, which induces further human capital investment and raises incomes. Although in our simulations the largest gains are observed when productivity is equated across countries, changes in longevity and in the incentives to educational investment are too relevant to ignore.

This paper presents evidence on the positive effect of international trade on productivity growth using industrial level data preceding and following Brazil's trade liberalization in 1988-1990. Brazil provides a rare policy experiment to study this issue that is seldom available: it was one of the most closed economies in the world until 1988 and intra-industry data are available on an annual basis before, during and many years after liberalization. Our data reveal large and widespread productivity improvement after barriers to trade were drastically reduced. On average, total factor productivity grew at 3 percent a year and labor productivity growth rates for all but one of the 16 industries we study were above 5 percent. Econometric results confirm the association between trade liberalization and productivity growth and show that the impact was indeed substantial: the observed tariff reduction in the period brought a 6 percent estimated increase in total factor productivity growth rate and a similar impact on labor productivity.

We estimate and test two alternative functional forms, which have been used in the growth literature, representing the aggregate production function for a panel of countries: the extended neoclassical growth model, and a mincerian formulation of schooling-returns to skills. Estimation is performed using instrumental-variable techniques, and both functional forms are confronted using a Box-Cox test, since human capital inputs enter in levels in the mincerian specification and in logs in the extended neoclassical growth model.

This article studies the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public (``infrastructure''). A positive externality due to infrastructure capital is assumed, so that the government could improve upon decentralized allocations internalizing the externality, but public investment is financed through distortionary taxation. It is shown that privatization is welfare improving for a large set of economies and that after privatization under-investment is optimal. When operation inefficiency in the public sector, subsidy to infrastructure accumulation and/or public consumption expenditures are introduced, gains from privatization are higher and positive for most reasonable combinations of parameters.

A theoretical model is constructed in order to explain particular historical experiences in which inflation acceleration apparently helped to spur a period of economic growth. Government financed expenditures affect positively the productivity growth in this model so that the distortionary effect of inflation tax is compensated by the productive effect of public expenditures. We show that for some interval of money creation rates there is an equilibrium where money is valued and where steady state physical capital grows with inflation. It is also shown that zero inflation and growth maximization are never the optimal policies.