# Working papers and current research

• The Impact of Geopolitical Conflicts on Trade, Growth, and Innovation (with Eddy Bekkers). Under Review.
• (Trade, Growth, Structural Modeling) Geopolitical conflicts have increasingly been a driver of trade policy. We study the potential effects of global and persistent geopolitical conflicts on trade, technological innovation, and economic growth. In conventional trade models the welfare costs of such conflicts are modest. We build a multi-sector multi-region general equilibrium model with dynamic sector-specific knowledge diffusion, which magnifies welfare losses of trade conflicts. Idea diffusion is mediated by the input-output structure of production, such that both sector cost shares and import trade shares characterize the source distribution of ideas. Using this framework, we explore the potential impact of a “decoupling of the global economy,” a hypothetical scenario under which technology systems would diverge in the global economy. We divide the global economy into two geopolitical blocs – East and West – based on foreign policy similarity and model decoupling through an increase in iceberg trade costs (full decoupling) or tariffs (tariff decoupling). Results yield three main insights. First, the projected welfare losses for the global economy of a decoupling scenario can be drastic, as large as 12% in some regions and are largest in the lower income regions as they would benefit less from technology spillovers from richer areas. Second, the described size and pattern of welfare effects are specific to the model with diffusion of ideas. Without diffusion of ideas the size and variation across regions of the welfare losses would be substantially smaller. Third, a multi-sector framework exacerbates diffusion inefficiencies induced by trade costs relative to a single-sector one.

• Draft article; VoxEU Column; Slides.
• Presented at 8th IMF-WB-WTO Trade Research Conference; 24th Annual Conference on Global Economic Analysis; and WashU at Saint Louis Economics Grad Student Conference.
• Tax Multipliers in the United States: a Regional Perspective (with Edoardo Briganti and Victor Sellemi).
• (Fiscal Policy, Inequality, Spatial Data) Policy-induced tax changes have very different incidence profiles. For instance, the tax reforms pursued by President Bush (2002) and President Obama (2013) were very different: the former was a large tax cut for both low-income and high-income tax units, while the latter was a small tax cut for the low-income households and a large tax hike for high-income earners. Presumably, such events could have very different macroeconomic implications. Modern economic theory incorporates heterogeneity and suggests that individuals at different points of the wealth and income distributions have different marginal propensities to consume, which could substantially impact fiscal multipliers \parencite{kaplan2018hank}. However, standard macroeconometric methods do not allow us to estimate multipliers for particular events; rather, only averages over time. In this project, we try to better understand the transmission mechanism of fiscal policy through an event-study approach. We estimate the event-specific causal effect of different federal personal income tax reforms on local economic activity, exploiting event-county-level (cross-sectional) variation in tax incidence induced by tax reforms under Presidents Bush (2002-03), Obama (2013), and Trump (2017). We use IRS adjusted gross income brackets at the county level to produce a novel data set of local taxable income distributions. We then combine the county income distributions $f_{c}(y)$, the number of returns at each county $n_c$, and tax policy variation at the federal level $\Delta \tau(y)$ to construct regional tax shocks $\Delta \tau_{c} = n_c \int_0^{\infty} \Delta \tau(y) \cdot y \cdot f_c(y) dy$, which represent the change in aggregate tax bill in county $c$ induced by federal policy variation. Using those shocks, and instrumenting for potential endogeneity of shares, we use a shift-share approach to estimate local multipliers of local tax liability on different measures of local economic activity, in particular employment, consumption, and retail GDP. Our work is related to the burgeoning literature that estimates multipliers with regional data \parencite{Chodorow2019}, which primarily focuses on expenditures. We contribute to this literature by using regional data to estimate taxes multipliers for all the major federal personal income tax reforms in the United States since 2000. Finally, we note that it is a well known issue that cross-sectional multipliers do not correspond to aggregate multipliers, since general equilibrium effects are absorbed by the intercept of the regressions (Wolf, 2019; Buera, 2021). In order to map our estimates to an aggregate multiplier, a future goal of this research is to use the results of the different event-studies to calibrate a multi-region Spatial Heterogeneous Agent New Keynesian model and recover (or at least put bounds) on aggregate multipliers that are consistent with our regional estimates.
• Slides; Draft coming soon.
• Trade, Growth, and Product Innovation.
• (Trade, Growth, Structural Modeling) Modern trade models can be roughly split into two classes. In Ricardian models, trade arises due to technological differences and is induced by comparative advantage. In differentiated variety models, trade happens entirely due to love of variety and typically comparative advantage plays no role. However, trade seems to have features of both of those classes of models. Countries cannot potentially produce the same products and, where there is overlap, comparative advantage shapes trade patterns. One of my goals with this project is to understand the mechanisms behind the dynamic evolution of comparative advantage, in which patterns of specialization changes over time. In order to do so, I generalize the Eaton and Kortum (2002) model of trade to one in which countries have different product spaces. Rather than having all countries potentially being able to produce all varieties contained on the unit interval, I assume that countries $n$ have product spaces with different dimensions $(0,A_{n}]$. This model shares characteristics with both of the aforementioned classes: static gains from trade arise not only due to sourcing goods from the cheapest available supplier, but also from access to varieties that cannot be produced in one’s own product space. To characterize which countries source different varieties, I partition the global product space (the set of all varieties available in the world economy) into disjoint intervals and show that each of those partitions is characterized by Ricardian competition for a specific set of countries. I have completed work on a static version of the model and am working on adding dynamics. My plan is to let the upper bound of the product space grow over time (in a Romer-model fashion) and endogenize the process of product diffusion and innovation, relating it to trade, as in the works Alvarez and Lucas (2013). I hope to be able to set bounds on countries product spaces through the evolution of product exports over time using trade data at the HS-6 digit level and patents data. Potential extensions of this framework could incorporate correlation between process innovation (evolution of the Frechet distribution location parameter) and product innovation (evolution of the product space), such that countries with different levels of productivity specialize on different parts of the global product space.
• Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics
• (Inequality, Empirical Macroeconomocs) Thomas Piketty’s Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the $r-g$ gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of $r-g$
• Draft; code and data.

# Refereed research articles

• Pairwise difference regressions are just weighted averages. Nature’s Scientific Reports 11, 23044 (2021).
• (Econometrics, Covid-19) This paper is a commentary showing that one paper published in Nature’s Scientific Reports claiming no association between stay-at-home policies and Covid-19 deaths had made serious mathematical mistakes in their regression models, which rendered their conclusion invalid. This commentary led to the retraction of the original paper.
• Filling the Gap: Infrastructure Investment in Brazil (with M. Garcia-Escribano, and I. Karpowicz). Journal of Infrastructure, Policy and Development. Vol 2 Issue 2 (2018).
• (Growth, Infrastructure, Spatial Data, Trade) This paper assesses the state of Brazil’s infrastructure, in light of past investment trends and various quality and quantity indicators. We provide evidence that infrastructure affects domestic integration by analyzing price convergence of tradable goods across major cities.
• Determinants of Infrastructure and its Financing (with V. Cerra, A. Cuevas, I. Karpowicz, T. Matheson, I. Samake & S. Vtyurina). Emerging Market Studies. v. 3-1, p. 1-22 (2017).
• (Growth, Infrastructure) This paper provides a comprehensive overview of infrastructure in Latin America and highlights key areas in which infrastructure networks can be enhanced.
• Institutions and growth: A GMM/IV Panel VAR approach. Economics Letters. v. 138, p. 85-91 (2016).
• (Growth, Institutions, Dynamic Panels Econometrics) In this paper, I build a panel structural vector autoregression (SVAR) model for a short panel of 119 countries over 10 years and find support for the institutions hypothesis. Controlling for individual fixed effects, I find that exogenous shocks to a proxy for institutional quality have a positive and statistically significant effect on GDP per capita. On average, a 1% shock in institutional quality leads to a peak 1.7% increase in GDP per capita after six years.
• Domestic market integration and the law of one price in Brazil (with Troy Matheson). Applied Economics Letters, 24:5, 284-288 (2016).
• (Spatial Data, Trade, Dynamic Panels Econometrics) This article presents the first assessment of domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas.

# Book chapters

• Trade Liberalization and Active Labor Market Policies (with A. Messa, C. Pio, E. Leoni, & L.G. Montes) In: Antonio Spilimbergo and Krishna Srinivasan. (Eds.). Brazil: Boom, Bust, and the Road to Recovery. Washington: IMF, 2018, pp. 111-124.
• (Trade, Labor, Spatial Data, Structural Model) Documents key facts about trade openness in Brazil (or lack thereof); and then presents the result of a general equilibrium model that tries to anticipate the long run impact of trade liberalization in each commuting zone in Brazil. Most commuting zones would benefit see a mild expansion in formal employment after liberalization, but, consistent with recent empirical estimates, the model predicts that some regions would be disproportionately affected.
• Income Inequality in Brazil: a Closer Look at the Evolution in States (with I. Karpowicz) In: Antonio Spilimbergo and Krishna Srinivasan. (Eds.). Brazil: Boom, Bust, and the Road to Recovery. Washington: IMF, 2018, pp. 111-124.
• (Inequality, Poverty, Spatial Data) Documents the evolution of income inequality across different states in Brazil. Leverages the data from a large panel of data surveys and uses a novel methodology that allows households’ incomes to be adjusted for price-level differences across states. One of the findings is that regional income inequality in Brazil happens primarily among the middle classes (median households) of each state – and differences in income across the very poor (bottom 5% of each state) and very rich (top 5% of each state) across states is not very large.
• Infrastructure in Latin America and the Caribbean (with V. Cerra, A. Cuevas, I. Karpowicz, T. Matheson, R. Papageorgiou, I. Samake, K. Vitola, & S. Vtyurina) In: Hamid Faruqee; S. Pelin Berkmen. (Eds.). Managing Transitions and Risks}. Washington: IMF, 2016, v. 16, p. 1-115.
• (Growth, Infrastructure, Latin America) Comprehensive review of quantity and quality of infrastructure capital stock in Latin America and the Caribbean.

# Policy papers and technical reports

• Abertura Comercial para o Desenvolvimento Econômico (lead-author, with many coauthors). Office of the President of Brazil, 2018.
• (In Portuguese. Trade, Labor, Spatial Data, Structural Model) Documents key facts about trade openness in Brazil (or lack thereof); and then presents the result of a general equilibrium model that tries to anticipate the long run impact of trade liberalization in each commuting zone in Brazil. Most commuting zones would benefit see a mild expansion in formal employment after liberalization, but, consistent with recent empirical estimates, the model predicts that some regions would be disproportionately affected.
• Custos Econômicos da Criminalidade no Brasil (lead-author, with many coauthors). Office of the President of Brazil, 2018.
• (In Portuguese. Development, Accounting, Crime) First accounting of total subnational and central expenditures related to violence in Brazil: justice administration; police; insurance; loss of productive capacity, among others. It incorporates both the private sector and public sector.