Articles & Publications

Abstract

We study diffusion indexes constructed from qualitative surveys to provide real-time assessments of various aspects of economic activity. In particular, we highlight the role of diffusion indexes as estimates of change in a quasi-extensive margin, and characterize their distribution, focusing on the uncertainty implied by both sampling and the polarization of participants' responses. Because qualitative tendency surveys generally cover multiple questions around a topic, a key aspect of this uncertainty concerns the coincidence of responses, or the degree to which polarization co-moves, across individual questions. We illustrate these results using microdata on individual responses underlying different composite indexes published by the Michigan Survey of Consumers. We find a secular rise in consumer uncertainty starting around 2000, following a decade-long decline, and higher agreement among respondents in prior periods. In 2014, six years after the Great Recession, uncertainty arising from the polarization of responses in the Michigan Survey stood at its highest level, coinciding with the weakest recovery in U.S. postwar history. The formulas we derive allow for simple computations of approximate confidence intervals, thus affording a more complete real-time assessment of economic conditions using qualitative surveys.

Abstract

Petersburg, Virginia, prospered over two centuries as a center of production and trade. However, the city experienced economic difficulties beginning in the 1980s as a large number of layoffs at production plants in the area coincided with an erosion of retail trade in the city. Prolonged economic decline followed. In contrast, somewhat similar shocks in other moderate-sized cities in Virginia were followed by gradual economic recovery. We examine these differing outcomes and offer an explanation that hinges on the proximity of Petersburg to its larger neighbor, the greater Richmond area. We find evidence suggesting that after the job declines, higher-skilled residents in Petersburg initially commuted to jobs nearer to Richmond, later relocating from Petersburg toward Richmond--an option not readily available in the other Virginia cities considered. We suggest that, as a result, Petersburg suffered a sharp decline in tax revenues and that municipal costs could not be proportionately scaled down, leading to severe fiscal stress.

Abstract

Reflecting upon recent enforcement policy activism of US states and countries within the EU towards unauthorized workers, we examine the overlap of centralized (federal) and decentralized (state or regional) enforcement of immigration policies in a spatial context. Among other results, we find that if interstate mobility is costless, internal enforcement is overprovided, and border enforcement and local goods are underprovided when regions take more responsibility in deciding policies. This leads to higher levels of unauthorized immigration under decentralization. Interregional migration costs moderate such over/underprovision. Moreover, income distributive motives in the host country may shape the design of immigration policies in specific ways. The basic model is extended in several ways. First, we study how the policies change when regions can exclude unauthorized immigrants from the consuming of regionally provided goods or services. Second, we assume that the potential number of unauthorized immigrants is endogenous. And finally, we examine the effect of considering an alternative spatial configuration that includes border and “interior” regions.

Abstract

Why does the implementation of urban policies with similar characteristics achieve disparate results? Why do the same policies work in certain social and economic environments, but not in others? What are the reasons explaining the varied outcomes? This presentation claims that social interactions, including neighborhood and network effects, may play a key role at explaining the effectiveness of urban policies. It is argued that the availability of new and better information, such as recent data obtained from social experiments, might provide new insights on how non-market interactions may condition policy interventions in an urban setting.

Abstract

Two municipalities within a metropolitan statistical area (MSA) determine the level of local law enforcement. Enforcement reduces and diverts crime. The former confers a spillover benefit; the latter a spillover cost. When labor is mobile, welfare necessarily declines: if enforcement is too high (low) under labor immobility, it is raised (reduced) further under mobility. If municipalities have different enforcement costs, mobility reduces welfare for the high-cost municipality and for the MSA, but the effect is ambiguous on the low-cost municipality. Finally, when residents choose between productive and criminal activities, enforcement is more likely to be overprovided.

Abstract

Criminals move between jurisdictions in response to differences in the net returns to crime that depend on the opportunity for crime and the effort to prevent crime. An increase in police protection of a jurisdiction diverts crime to other jurisdictions when only public crime prevention such as police protection is available. However, residents also invest in private prevention (private security, burglar alarms, etc.), and the value of these measures depends on the level of local public protection. In a spatial context, an increase in public prevention of a jurisdiction not only alters the incentives of individuals of the jurisdiction, but also of other jurisdictions as well, and such a change in private crime prevention may end up attracting crime to the jurisdiction. An increase in public prevention of a jurisdiction thus may divert or attract crime. This ambiguous effect stands in contrast with the literature and may appear counterintuitive, but is logical under plausible conditions.

Abstract

This paper explores the existence of partisan cycles in foreign direct investment performance. Our theoretical model predicts that the incumbent government's partisanship should affect foreign investors' decision to flow into different sectors of the host country: pro-labor governments would encourage the inflow of the type of investment that complements labor in production; pro-capital governments would promote the entry of investment that substitutes for labor. Empirical evidence from a sample of Organisation for Economic Co-operation and Development countries reveals a pattern of foreign investors' response to partisan cycles consistent with the predictions of the model. First, foreign investment systematically flows into different sectors of the host economy under left- and right-leaning incumbents. Second, we find a positive correlation between foreign investment and changes in average wages under left-leaning incumbents, but no effect on wages under right-leaning governments.

Abstract

This paper develops a theoretical model of spatial competition be- tween banks that attempts to explain the rationale behind the implementation of federal branching restrictions in the U.S. banking industry in 1927, and their subsequent elimination in 1994. The model considers two difierent settings. The flrst one assumes that banks cannot open a branch in another state or region, and the second one considers that there are no branching restrictions. We derive the Nash Equilibria when banks compete in interest rates ofiered to investors located in difierent regions and determine winners and losers in each case. We also examine the conditions under which banks would flnd it profltable to open a branch in another region in terms of the costs of performing long-distance transactions. We show that when these costs decline (for instance, as a result of technological innovations in the banking industry), banks do not flnd it attractive to open branches elsewhere. Hence, any regulation that prevents branching restrictions simply becomes obsolete. In light of the conclusions of the model, the elimina- tion of these restrictions can be understood as an attempt to bring regulatory standards in accordance with economic reality.

Abstract

The paper analyzes the effect of fiscal competition when local governments choose the level of public goods that generate spillover effects elsewhere. For instance, law enforcement activities affect both the crime level in the jurisdiction providing the good and in neighboring communities. The model shows that when local governments rely on capital taxation to finance these expenditures the spillover effects may not lead to an inefficient provision of public goods as predicted by the tax competition literature. In the model, capital is costlessly mobile and offenders relocate responding to differential criminal opportunities and differential local law enforcement efforts.

Abstract

The paper develops an analytical framework in which regional governments strategically determine the structure of the corporate profit tax system when an apportionment formula determines the proportion of the firms' income subject to regional taxation. The conclusions can be summarized as follows: (i) Regional governments subsidize capital through the corporate tax system. (ii) Tax rates become higher and the portion of capital costs that can be deducted from taxable income becomes smaller as the formula weighs more production shares. (iii) The regionally provided good may be below or above the efficient level. (iv) The extent of the distortion depends on the particular formula put into practice. (v) Regional governments strictly prefer a formula that exclusively weighs the production proportion to any other alternative.

Abstract

We study how fiscal policies and commuting costs determine the geographical distribution of workers and households in an economy. We characterize equilibrium outcomes in a simple two-region model with commuting costs, local public goods, and local infrastructure. We also provide a short survey of the related economic literature that discusses other important factors driving the localization decisions of agents. Finally, we argue that the issues raise in this paper play a significant role in the geographic distribution of economic activity in the Greater Buenos Aires urban area of Argentina.

Abstract

This paper examines the argument for public provision of certain private goods, like education and health, based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods. A given quality of education or health services can be consumed for free in the public sector, but people can opt-out and purchase their desired quality levels in the private sector. Some of the conclusions are: (i) a pure cash transfer is optimal when the utility redistribution is either “sufficiently” small or large; (ii) if and only if both the equality-of-opportunity concern and the utility redistribution are large enough, can an in-kind program which attracts the whole population be justified; (iii) even when everybody chooses the in-kind program, it may be optimal to perform some additional utility redistribution by increasing the size of such program.

Abstract

Policymakers frequently design self-targeting programs or target poor areas to assist poor families when income is not observed. Self-targeting schemes take advantage of differences in participation costs in assistance programs across households. Geographic targeting assumes that transfers are solely determined by the region of residence: to receive the benefits, households not initially present in the targeted areas must relocate away from their original place of residence and live with the poor, which entails a cost that can also be interpreted as a participation cost in the assistance program. The paper shows that a combination of in-kind and in-cash transfers tied to the consumption of a publicly provided private good targeted to the poor becomes very useful when non-poor households have different participation costs. By distinguishing users and non-users of public facilities additional in-cash transfers can be directed to the poor more effectively. The paper demonstrates that the publicly provided good ends up being undersupplied, and the distortion becomes less important as participation costs rise. More importantly, it shows that this kind of redistributive program dominates a pure in-cash scheme.

Abstract

There is substantial evidence suggesting that the process of suburbanization creates new job opportunities that are not equally exploited by all workers. In order to explain this phenomenon, a simple model is developed which incorporates borrowing constraints as an important restriction on moving decisions, obstructing the necessary labor flows between jurisdictions required to equalize (net) wages. In essence, people who cannot borrow will be restricted in terms of their capability to change residence location and, therefore, will have limited possibilities of working in distant labor markets, or they will be subject to excessive commuting. Furthermore, the labor allocation induced by households' behavior facing these constraints affects consumer welfare, production, and producers' profits. The outcomes with perfect credit markets and with borrowing restrictions are calculated, and the economic welfare levels are compared. As wages are flexible, they adjust to reflect the relative scarcity of workers present in each jurisdiction. Consequently, some of the negative effects of the borrowing constraints are compensated, so the outcomes cannot be easily compared. Some numerical examples are constructed to have an idea of the possible outcomes under different conditions. Finally, it is found that allowing for moving cost deductions from taxable income may help to alleviate the problem.

Abstract

We investigate the delicate balance policymakers have to strike between raising tax revenues for public good provision and controlling the distortionary effects of taxes on (i) tax evasion, (ii) total work hours, and (iii) the allocation of work hours to illegal activities. These distortions lower the constrained optimal tax rate and result in the under-provision of the public good. This under-provision problem is mitigated when surplus from the audit agency is seamlessly transferred to the taxing authorities. Extensions of the basic model incorporate agent heterogeneity and a more general specification of the concealment cost function for infringements.

Abstract

It is well-known that competition for factors of production, including competition for residents, affects the public services provided in the communities. This paper considers the determination of local investment in urban transport systems. Many specialists question the effectiveness of the current U.S. top-to-bottom transportation institutional arrangement in which the federal government plays a dominant role and recommend a shift toward a decentralized organization. We examine how such a shift would affect the levels of transport investment. Specifically, we consider a model of two cities, and assume, as in Brueckner and Selod (2006), that transport systems are characterized by different time and money costs. We compare the outcomes reached when the transport system is decided by a central authority (a state or federal government) to the one decided by each jurisdiction in a decentralized way. In the latter case, city or local transportation authorities choose the system that maximizes residents’ welfare, taking as given the decisions made elsewhere, essentially competing for residents (or workers). Our analysis shows that even though a shift toward a decentralized arrangement of the transportation system would generally lead to overinvestment (relative to the centralized case), the extent of this bias depends on the specific factors that drive transport authorities in deciding the transportation system, on the landownership structure, and on the financing arrangements in place. The paper also shows that, in a more general setup, when the two cities differ in their productivity levels, the more productive city will tend to overinvest in transportation systems that connect the two cities, and the less productive city will tend to underinvest in those systems.

Abstract

We study diffusion indices constructed from qualitative surveys to provide real-time assessments of various aspects of economic activity. In particular, we highlight the role of diffusion indices as estimates of change in a quasi extensive margin, and characterize their distribution, focusing on the uncertainty implied by both sampling and the polarization of participants' responses. Because qualitative tendency surveys generally cover multiple questions around a topic, a key aspect of this uncertainty concerns the coincidence of responses, or the degree to which polarization comoves, across individual questions. We illustrate these results using micro data on individual responses underlying different composite indices published by the Michigan Survey of Consumers. We find a secular rise in consumer uncertainty starting around 2000, following a decade-long decline, and higher agreement among respondents in prior periods. Six years after the Great Recession, uncertainty arising from the polarization of responses in the Michigan Survey stands today at its highest level since 1978, coinciding with the weakest recovery in U.S. post-war history. The formulas we derive allow for simple computations of approximate confidence intervals, thus affording a more complete real-time assessment of economic conditions using qualitative surveys.

Summary

Trabajo que constituye un avance en el análisis y aplicación de medidas de eficiencia relativa del sector publico local. Esta compuesto de dos capítulos. En el primero hace un resumen crítico de la literatura teórica y empírica sobre el tema. Pone especial énfasis en puntualizar las ventajas y deficiencias de cada metodología en cuanto a su validez teórica y aplicabilidad empírica. El segundo capítulo advierte los problemas de ingterpretación que pueden tener los procedimientos usados tradicionalmente para medir eficiencia, aunque no se descarta su uso cuando existen restricciones importantes de información. en genera y cuando es viable, se recomienda el uso de técnicas un poco más sofisticadas. Una de las técnicas no paramétrica de fronteras determinísticas, es utilizada en el capítulo 2 para estudiar la eficiencia relativa en el sector educativo de los gobiernos provinciales y de los municipios de la provincia de Buenos Aires. A pesar de que se trata de un primer avance en la aplicación de esta metodología y que la información sobre la que se basa es escasa, se obtienen resultados interesantes.

Abstract

Political economy explanations of the politics of trade argue that policy-makers are politically motivated, and choose trade policy in response to the demands by voters and privileged groups most affected by trade flows. Empirical approaches often rely on reduced-form estimates of parameters derived from different variants of traditional political economy models of trade to explain the influence of winners and losers from trade on the formation of trade policy. Yet there is an important mismatch between theoretical and empirical contributions, which is reflected in our inability to reconcile a strong empirical regularity: a lack of correspondence between legislative voting patterns on trade policy and district level predictors of trade policy stance, as reflected in the political backlash to the China-shock. In this paper we take a first stab at a framework linking theory and empirics: we develop a structural estimation of a formal model inspired by the Grossman and Helpman’s (GH) model of trade politics. Our modeling strategy differs from GH in a fundamental way: we model the vector of tariffs that would be chosen by a local decision-maker representing a district (or region) within a larger polity populated by numerous regions. We are, thus, able to compare the vector of tariffs enacted by a central planner from the solution that would be preferred by the local decision-maker. Ultimately the policy enacted will reflect the implicit weights that reflect the preference aggregation protocol resulting from the institutional structure in the polity. Using data for the 435 Congressional districts in the U.S. and the vector of sectoral tariffs enacted by Congress, we are able to estimate the implicit weights placed by the federal government on different actors, sectors and regions. We are also able to document sizable differences between the legislated tariffs and the implicit demand for protection at the Congressional District level.

Abstract

This paper is part of a broader agenda and constitutes a first step to understanding, both theoretical and empirically, the constraints that several developing economies face in moving towards a cashless economy. We present a simple model of payment methods that includes the main determinants of the adoption of electronic payments in developing economies. The paper focuses in the case of Argentina. We use household data to empirically examine the factors underlying the use and adoption of credit cards in the years 2012 and 2017/18. In line with the model, the results show the importance of informality and network effects in driving such decisions. The model can be further generalized to include the use and adoption of other electronic payments mechanisms. The analysis performed in this paper is particularly useful to understand the impact of the Covid-19 shock, which has triggered the use of alternative electronic payment, challenging the widespread use of cash in the economy.