Research

This paper analyzes the role of higher education in shaping intergenerational mobility, income inequality and aggregate income. We introduce a model where overlapping generations of heterogeneous households make college choices subject to a borrowing constraint and with heterogeneous colleges that maximize quality. The model is consistent with the observed patterns of sorting of students across colleges and can generate several trends observed in the U.S. since 1980 : a rise in the returns to human capital is predicted to increase the dispersion of spending per-student across colleges, the exclusion of low-income students from top colleges, tuition fees, the intergenerational elasticity of earnings (IGE) and income inequality. Counterfactual simulations show that if all students received the same higher education, the IGE, the income Gini and aggregate income would decrease by up to 21%, 4.2% and 9.7% respectively. Increasing the progressivity of institutional need-based student aid would enhance mobility, decrease inequality and boost GDP by improving the sorting of students and financial resources across colleges.

The paper presents series on dispersion of expenditures per student, revenues and faculty per student across colleges from 1980 to 2016 in the United States using IPEDS data. Inequality across students have been slowly and steadily increasing over the period. All measures of inequality suggest that the increase is half as large as the increase in annual income inequality. The trend is entirely driven by four-year colleges, with an increase in inequality within-public, within non-profit private institutions and between non-profit private and public colleges. I also show that the average and the progressivity of government transfers to higher education institutions have sharply declined over the period, especially at four-year institutions. This, together with the rise of household income inequality, may explain the rising inequality across colleges.

This paper develops a framework in which university research depends endogenously on competition for tuition and talented students in the market for higher education. When students are highly stratified across colleges, or when tuition rises sharply with school rank, universities spend on R&D even if the direct contribution of research to teaching is small. The model is consistent with causal evidence from a natural experiment and matches new features of the administrative microdata. It also explains why universities internally fund research with tuition, despite negligible returns to patenting. Calibrated simulations suggest quantitatively important implications for federal research and student-aid policies.

Donations and Endowments are extremely unequally distributed across colleges. This paper documents the dispersion of donations and endowments across colleges and show that it amplifies inequality of resources in the higher education sector. Donations and endowments are moreover subject to preferential tax treatments. In order to examine the implications for income inequality, intergenerational mobility and efficiency of different tax regimes, I then build a tractable model which extends Capelle (2019) by allowing colleges to build relationships with donors and accumulate an endowment. I find that the income tax deduction for charitable deduction and the exemption of endowment from taxes have, in general, ambiguous effects on inequality and mobility.

This paper analyzes the welfare impacts of fiscal decentralization. Using detailed municipal budget data in France, we uncover significant heterogeneity in both the level and the composition of public goods across localities. Additionally, we find that localities with varying income levels and population sizes systematically allocate their budgets differently across varieties of public goods. To explain these patterns, we develop a quantitative spatial equilibrium model featuring households with non-homothetic preferences over multiple public goods, heterogeneous public good rivalry, local voting on tax rates and public goods bundles, and federal transfers. Our simulations reveal significant welfare gains from decentralization, primarily driven by the ability to tailor the mix of public goods to local preferences and costs. Household mobility significantly amplifies these gains.

This paper assesses the effectiveness of TIP in providing stimulus at the Zero Lower Bound (ZLB). When the ZLB arises from a fundamental drop in the neutral rate of interest, a negative TIP mitigates the deflationary spiral, reduces the output gap and enhances welfare. Simulations of a small scale New Keynesian (NK) model show that it is preferable to forward guidance and increases in government spending. When the ZLB arises from a shift of the Phillips curve, TIP can restore the first best. When it arises from self-fulfilling expectations, TIP can rule out the deflationary equilibrium. Importantly, an simple inflation-targeting rule for TIP provides a robust welfare-improving policy at the ZLB. Finally, simulations of a medium-scale NK model for Japan reveal substantial welfare gains at the ZLB. .

Recent evidence has highlighted the financial stability implications of interest rate tightening. We develop a tractable model in which intermediaries face occasionally binding leverage constraints and endogenous risks of runs, while producers face price adjustment frictions. Interest rate tightening, by lowering asset prices, exacerbates both financial distortions when intermediaries’ equity is sufficiently low. We use the model to jointly characterize optimal (Ramsey) interest rate policy, credit policy, equity injections, macroprudential policy, and deposit insurance during periods of financial fragility. If non-interest rate tools were costless, the right combination of tools could perfectly separate financial stability from price stability objectives. When these tools are costly, interest rate tightening should be less aggressive and, in the face of run risks, adopt a risk-management approach. The optimal mix of policies depends on the degree of financial fragility, the cost and the effectiveness of non-interest rate tools.

We study the impact of the last five decades of financial globalization on world GDP and income distribution, employing a novel multi-country dynamic general equilibrium model that embeds a demand system for international assets. We introduce, estimate and validate new country-level measures of inward and outward Revealed Capital Account Openness (RKO), which are derived from wedge accounting. The implementation of our framework requires only minimal data, which is available as early as 1970 (national income accounts, external assets and liabilities positions). Our RKO wedges reveal enormous heterogeneity in the pace of capital account liberalization, with richer countries liberalizing much faster than poorer ones. We call this pattern Unbalanced Financial Globalization. We then utilize our model to simulate a counterfactual trajectory of the global economy, where the RKO wedges are fixed at their pre-globalization levels. We find that unbalanced financial globalization led to a worsening of capital allocation (lowering world GDP by 1.4%), a 10% rise in the cross-country dispersion of GDP per capita, lower wages in poorer countries and lower cost of capital in high-income countries. These findings stand in sharp contrast to the predictions of standard models of financial markets integration, where capital account barriers decline symmetrically across countries. We also study counterfactual globalization patterns where countries open their capital account in a symmetric or convergent fashion, and find that these scenarios produce diametrically opposite effects (significant improvements in capital allocation efficiency and lower cross-country inequality, higher wages in poor countries, etc..). These findings underscore the pivotal role played by country heterogeneity in shaping the real effects of capital markets integration. 

This paper analyzes the effectiveness of a tax on inflation policy (TIP), which would require firms to pay a tax proportional to the increase in their prices or wages, in stabilizing inflation. We show that TIP would effectively correct externalities in firms’ pricing decisions, tackle excessive inflation and reduce output volatility. While proposals from the 1970s saw TIP as a substitute to MP, we find that they are complementary, with TIP addressing cost-push shocks, and MP addressing demand shocks. In sharp contrast with price controls, TIP doesn’t exacerbate price distortions.

The paper develops a stylized dynamic general equilibrium model with a finite number of large financial intermediaries subject to endogenous – systemic and idiosyncratic – run risk and playing à la Cournot internalizing the effect of their action on aggregate risk, returns and asset prices. In the neighborhood of the steady-state, they optimally restrict their investment to be a function of their net worth to avoid the risk of a run which gives rise to an accelerator effect. For a large adverse shock, the financial system enters a run zone characterized by high leverage, deleveraging over time and risk of run from which it may escape in finite time. The instability of the system is a function of how long it stays in this zone. This depends on the level of competition through three channels: the franchise value channel, the price-drop channel and the recapitalization channel. I also show that contestability – the speed of entry – has significant stabilizing effect, what I call the entry channel. The model is consistent with empirical evidence and provides new testable predictions.

This paper studies the impact of a broadening of the SDR basket to the Chinese currency on the composition and volatility of the basket. Although, in the past, RMB inclusion would have had negligible impact due to its limited weight, a much more significant impact can be expected in the next decades. If the objective is to reinforce the attractiveness of the SDR as a unit of account and a store of value through more stability, then a broadening of the SDR to the RMB could be appropriate, provided some flexibility is introduced in the Chinese exchange-rate regime. This issue of flexibility is de facto more important than that of “freely usable” to make the SDR more stable, at least in the short and medium run.

This paper reviews the theoretical arguments in favor and against monetary finance and presents an empirical assessment of the risks that it may pose for inflation.

This paper analyzes how financial frictions and policies to alleviate them shape total emissions and the effectiveness of carbon pricing. We present empirical evidence that less financially constrained firms operate with lower emission intensities and are better able to improve their environmental performance in response to higher carbon prices, in part by drawing on external finance. We propose a heterogeneous-firm general equilibrium model featuring endogenous adoption of better capital vintages subject to financial frictions that quantitatively matches our empirical evidence. Simulations of the calibrated model show that relaxing financial constraints—including green-biased lending—raise total emissions, despite fostering adoption of cleaner technologies, because they increase GDP. Moreover, financial frictions give rise to additional channels and larger economic costs of higher carbon prices. .

We document significant within-industry heterogeneity in environmental performance across firms globally and across sectors. We find that this heterogeneity is in part driven by newer capital-embedded technologies and intangible investments that raise productivity. We propose a multi-sector heterogeneous-firm general equilibrium model which endogenizes these novel determinants and matches the extent and drivers of firm heterogeneity. Calibrated simulations for several countries reveal the importance of adoption of newer capital-embedded technologies in lowering the costs of mitigation policies. We highlight the trade-off between short-term costs and long-term benefits of subsidies for capital upgrading. .

The paper develops a multi-region, -sector and -crop model to assess the economic impact of climate change in agriculture-based economies with fast population growth. The model allows for several channels of transmission of climate change—change in temperatures and precipitation, crop yields, and labor productivity— and multiple margins of adaptation—switching crops, migration across regions and from/to urban areas—and an endogenous choice of agricultural land size. Calibrated to match aggregate-, region- and crop-level moments in Burkina Faso, the model predicts that GDP per capita would decrease by 2.1% in a severe but realistic scenario of global warming at the 2050 horizon (RCP 6), mainly due to declining labor productivity and with substantial heterogeneity across regions and crops. Adaptation margins, especially migration, mitigate these costs by about a third. But these gains are partially offset by increasing congestion of agricultural land implied by migration to more productive regions. Land congestion is amplified by the large expected population growth by 2050 which magnifies the costs of climate change..

During the last quarter century, job tenure in Europe has shortened. Using data from Eurostat Labor Force Surveys of 29 countries from 1995 to 2020 and applying an age-period-cohort decomposition to analyze changes in tenure for specific birth cohorts, we show that tenure has shrunk for cohorts born in more recent years. To account for compositional changes within cohorts, we estimate the probability of holding jobs of different durations, conditional on individual and employment-related characteristics. The estimations demonstrate that, over time, the likelihood of having a medium- or long-term job decreased and holding a short-term job increased. We also find that stricter job protection legislation appears to decrease the probability of holding a short-term job, and higher trade openness and ICT-related technological change are correlated with an increase of that probability.