Research

• Renegotiation After Sovereign Default: Bygones No Longer  

In the aftermath of a sovereign default, debt recovery is determined through a restructuring process. This recovery is important for both the country and the creditors. For the country, debt recovery determines its debt burden after exiting default and impacts macroeconomic performance. For the creditors, recovery reduces their losses. Using the dataset of Cruces and Trebesch (2013), I show that the level of recovery is positively related with the level of defaulted debt. In light of this finding, I build a framework that rationalizes this strong association by employing the Kalai-Smorodinsky bargaining solution as a model of sovereign debt renegotiation, while jointly matching standard emerging markets' behavior. I identify the key assumptions that enable the model to match the data. I also show that the standard model using Nash bargaining protocol results in debt recovery being unrelated to the outstanding level of debt. A debt relief program is then studied to highlight the difference between the two models in welfare implications. 

• Inequality and Efficiency of Fiscal Rules, with Laura Karpuska

Countries have a range of fiscal rules that they can adopt to improve fiscal sustainability. Rules can target different fiscal instruments, such as spending or debt limits, which have different impacts on politicians' trade-offs when choosing fiscal policy. Thus, fiscal rules can yield varying effects on social inequality and economic efficiency. We build a political economy model in which parties alternate in power and bargain over resources. We characterize the unique subgame perfect equilibrium of this game. We show that the emergence of debt requires a lack of insurance against power fluctuation. Furthermore, we show that when there is political bargaining, debt will be greater since it will be used as bargaining chip. We find that, for this reason, debt ceilings are the most detrimental in terms of efficiency losses coming from fiscal rules, though they do help reduce inequality because they prevent excessive intertemporal expropriation. Furthermore, spending limits can backfire and stimulate over-issuance of debt when they target budgetary items that are insured against power alternation.

• The Wealthy Hand-to-Mouth and Property Tax Reform in China. 

• Debt Arrears and Delay in Sovereign Default Renegotiation

• Healthcare Reform, Migration, and Economic Growth in China, with Yan Wang and Bo Li