Research

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.

This paper analyzes the role of the higher education system in shaping income inequality and intergenerational mobility. I introduce a model where overlapping generations of heterogeneous households make college choices subject to a borrowing constraint and with heterogeneous colleges that maximize quality. First, I show that in response to the observed rise in the returns to human capital in the U.S. since 1980, the model predicts an increase in income inequality, in tuition, in the dispersion of spending per-student across colleges, in the exclusion of low-income students from top colleges, and in the intergenerational elasticity of earnings (IGE), all consistent with the data. I quantify the model with rich micro-data from the U.S. About 6% of the observed increase in income inequality results from changes in how students and resources are allocated across colleges. Second, I use the model to run policy counterfactuals. If all students received the same higher education, the income Gini coefficient and the IGE would decrease by up to 9% and 33%, respectively. Current government interventions—financial aid and transfers to colleges—decrease the Gini coefficient by 3% and the IGE by 12% compared to a laissez-faire benchmark. Need-blind admissions can be particularly useful at increasing mobility and correcting for the misallocation of students and resources, thereby increasing GDP, but also potentially income inequality.

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.

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.

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.

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 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.

When inflation originates from distributional conflicts, shifts in inflation expectations or energy price shocks, monetary policy (MP) is a costly stabilization instrument. This paper analyzes the effectiveness of a tax on inflation policy (TIP), an instrument first proposed in the 1970s, which would require firms to pay a tax proportional to the increase in their prices. By giving direct incentives to firms to moderate their price increases, TIP effectively corrects externalities in their pricing decision, tackles excessive inflation and lowers the volatility of output and inflation relative to a setting where only MP is available. While proposals from the 1970s saw TIP as a substitute to MP, we find that it is a powerful complement. TIP should specialize in distributional conflict and inflation expectation shocks (and occasionally TFP shocks), and MP in demand shocks. These results are robust to several alternative designs of TIP.

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.

Using self-reported data on emissions for a global sample of 4,000 large, listed firms, we document large heterogeneity in environmental performance within the same industry and country. Laggards—firms with high emissions relative to the scale of their operations—are larger, operate older physical capital stocks, are less knowledge intensive and productive, and adopt worse management practices. To rationalize these findings, we build a novel general equilibrium heterogeneous-firm model in which firms choose capital vintages and R&D expenditure and hence emissions. The model matches the full empirical distribution of firm-level heterogeneity among other moments. Our counter-factual analysis shows that this heterogeneity matters for assessing the macroeconomic costs of mitigation policies, the channels through which policies act, and their distributional effects. We also quantify the gains from technology transfers to EMDEs.

The paper assesses the economic impact of climate change in Burkina Faso through the lens of a quantitative spatial model that incorporates multiple regions, sectors and crops. 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. Calibrated to match aggregate-, region- and crop-level data, the model predicts that GDP would decrease by 0.20 to 3.25% in the RCP 2.6 and RCP 6 respectively at the 2050 horizon, mainly due to declining labor productivity, but with substantial heterogeneity across regions and crops. Adaptation margins mitigate the cost of climate change by 13.5% but most of these gains are offset by the decreasing land sizes implied by movements in population to more productive areas. The scarcity of land also implies that the cost of climate change is magnified by expected growth in population..

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.