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CURRENT RESEARCH:

[Future research questions]

Aggregate Effects of Imperfect Tax Enforcement [PDF]

(Job Market Paper)

In this paper I study an economy in which the government is not able to perfectly enforce tax compliance among operating firms and compare it with one in which perfect enforcement is attainable. I develop a competitive general equilibrium model where imperfect tax enforcement may affect aggregate outcomes through two mechanisms. First, it may distort firms' optimal output level as long as the probability of avoiding tax compliance is related to the firm's
size. Second, poor tax enforcement may lead to a low provision of the public goods that complement firms' productivity. The results for a calibrated version of the model suggest that in economies with tax enforcement problems aggregate output might be reduced by 12%. I also conclude that sizeable aggregate effects can be obtained only when the public goods mechanism is at work.

Optimal Tax Payments under Imperfect Tax Enforcement

(Work in progress at early stage)

I analyze an economy in which the government is not able to perfectly enforce tax compliance among firms. In this economy firms optimally decide their amount of tax payments which may be lower than what is required by law. I depart from previous literature in which tax compliance is a discrete choice, firms either fully comply or do not pay taxes at all. In the environment I propose tax compliance is a continuous choice variable and therefore firms can be labeled as more or less formal. This matches an empirical regularity among firms in developing countries.
 

A Simple Model of Production Risk Sharing and Access to Financial Markets

(Work in progress)

I develop a simple model to understand the potential aggregate implications of costly participation of firms in financial markets. In the proposed model a risk neutral entrepreneur runs a risky technology and her payoffs become riskier with the scale of operation. This entrepreneur may decide whether to sell or not her firm to a risk neutral intermediary. Whenever a firm is sold there is a fixed cost. The model predicts that big firms are sold (become public) while small firms remain private. Private firms under invest as entrepreneurs engage in precautionary savings. The fraction of firms that remain private depends on the size of the fix cost, which I rationalize as the level of financial development. I build on Angeletos-Calvet 2006 [1]  and provide a closed form solution of the model under CARA preferences, normal shocks and constant interest rate.

FUTURE RESEARCH QUESTIONS:

[Current research]

Size Distribution of Farms

In some developing countries the average farm size seems to be way too small. That will be the case for a country like Peru, where the size distribution of farms was dramatically altered after a land reform in the 70's. What would be the optimal size distribution of farms in a country like Peru? How far is the observed distribution from the optimal one? Why? and what are the aggregate costs of that?

Corruption and Inefficiency

There is cross country empirical evidence on a negative correlation between corruption levels and development. To what extent the causality goes from corruption to economic development? Can corruption generate an inefficient allocation of resources across firms? By how much? What are the mechanisms?