Research
Working Papers
Abstract: This paper analyzes whether a minimum wage should be used for redistribution on top of taxes and transfers. I characterize optimal redistribution for a government with three policy instruments -- labor income taxes and transfers, corporate income taxes, and a minimum wage -- using an empirically grounded model of the labor market with positive firm profits. A minimum wage can increase social welfare when it increases the average post-tax wages of low-skill labor market participants and when corporate profit incidence is large. When chosen together with taxes, the minimum wage can help the government redistribute efficiently to low-skill workers by preventing firms from capturing low-wage income subsidies such as the EITC and from enjoying high profits that cannot be redistributed via corporate taxes due to capital mobility in unaffected industries. Event studies show that the average US state-level minimum wage reform over the last two decades increased average post-tax wages of low-skilled labor market participants and reduced corporate profits in affected industries, namely low-skill labor-intensive services. A sufficient statistics analysis implies that US minimum wages typically remain below their optimum under the current tax and transfer system.
Abstract: We propose an observational implementation of the outcome test that uses predicted selection status to identify marginal individuals. We provide conditions under which selected individuals with lower propensity scores are more likely to be marginal given their observables and propose empirical diagnostics to assess their plausibility. Our approach requires neither instruments nor the random assignment of decision-makers, allows for unrestricted correlation between observables and unobservables, and can accommodate non-monotone patterns of discrimination. We illustrate our method by analyzing prejudice in pretrial detentions against the Mapuche, the largest ethnic minority group in Chile, and find strong evidence of prejudice against them.
An Observational Implementation of the Outcome Test with an Application to Ethnic Prejudice in Pretrial Detentions (appendix)
with N. Grau
Revision requested at The Review of Economics and Statistics
Abstract: We propose an observational implementation of the outcome test that uses predicted selection status to identify marginal individuals. We provide conditions under which selected individuals with lower propensity scores are more likely to be marginal given their observables and propose empirical diagnostics to assess their plausibility. Our approach requires neither instruments nor the random assignment of decision-makers, allows for unrestricted correlation between observables and unobservables, and can accommodate non-monotone patterns of discrimination. We illustrate our method by analyzing prejudice in pretrial detentions against the Mapuche, the largest ethnic minority group in Chile, and find strong evidence of prejudice against them.
Abstract: We study a reform to the workers' compensation system in Argentina that, after a workplace accident, mandated workers to go through a government medical commission that determines the degree of disability, whether the injury happened in the workplace, and the corresponding compensation, before additional legal actions can be taken. Leveraging the staggered implementation of the reform across provinces, we find that the reform substantially reduced workplace lawsuits with no effects on reported accidents. Employment increased by more than 5% one year after the reform in highly exposed industries, with no effects on average earnings or the number of active firms.
Abstract: This paper tests for discrimination against immigrant defendants in the criminal justice system in Chile using a decade of nationwide administrative records on pretrial detentions. Observational benchmark regressions show that immigrant defendants are 8.6 percentage points less likely to be released pretrial relative to Chilean defendants with similar proxies for pretrial misconduct potential. Diagnostics for omitted variable bias --including a novel test to assess the quality of the proxy vector based on comparisons of pretrial misconduct rates among released defendants-- suggest that the discrimination estimates are not driven by omitted variable bias and that, if anything, failing to fully account for differences in misconduct potential leads to an underestimation of discrimination. Our estimates suggest that discrimination stems from an informational problem because judges do not observe criminal records in origin countries, with stereotypes and taste-based discrimination playing a role in the problem's resolution. We find that discrimination is especially large for drug offenses and that discrimination increased after a recent immigration wave.
Selected Work in Progress
Directed Search, Minimum Wages, and Job Applications: Evidence from an Online Job Board
with V. Escudero and H. Liepmann
Abstract: This paper explores a new mechanism that helps rationalize positive wage effects with limited employment effects after minimum wage hikes: the "application effects" of the minimum wage. An increase in the minimum wage generates a mechanical hike in labor costs for affected firms, eventually pushing employment downwards. However, the increase in the minimum wage may attract more applicants, making it easier for firms to fill vacancies. This effect may attenuate the increase in labor costs. We test this mechanism using data from the largest online job board in Uruguay for the 2010-2020 period combined with industry-by-occupation minimum wages defined in sectoral collective bargaining agreements. The data contains detailed information on vacancies, applicants, and applications, which we use to build indicators of minimum wage exposure at the vacancy-level using a combination of firm-level data and natural language processing techniques. At the descriptive level, we observe a positive correlation between posted wages and applications within occupations that are more substitutable between industries, namely clerical support workers, sales workers, and elementary occupations. The descriptive pattern is corroborated in a regression framework that exploits minimum wage adjustments as quasi-experimental variation using two different differences-in-differences designs, both at the industry-by-occupation- and at the vacancy-level. Both exercises suggest positive, finite, and significant elasticities of applications to wages that are consistent with the estimated firm-level labor supply elasticities from the empirical monopsony literature.
Sectoral Minimum Wages, Firms, and Wage Inequality: Evidence from Uruguay
with M. Bergolo, R. Ceni, and M. Fondo
Abstract: This project uses ten years of matched employer-employee data from Uruguay's Social Security Administration to study the effects of a large reform on minimum wages on wage inequality. In 2005, the Uruguayan government substantially increased the (previously non-binding) national minimum wage and reinstalled historical wage councils organized by economic activity that define industry by occupation minimum wages on top of the national minimum wage. We document a massive decrease in wage inequality after 2005, which is almost exclusively explained by a decrease in the between-firm, rather than the within-firm, variance of log wages. An AKM decomposition confirms the importance of the firm component in the evolution of wage inequality. Preliminary results using a time-varying AKM model show a large compression in the dispersion of firm fixed-effects after the reform. Specifically, wage premiums of firms at the bottom of the fixed-effects' distribution seem to converge to the higher quantiles. Ongoing analysis further explores the role of firms, worker transitions, and the relative importance of the national and sector-specific wage institutions on the aggregate decrease of wage inequality.
Publications
Do Policies and Institutions Matter for Pre-Tax Income Inequality? Cross-Country Evidence (appendix) (replication package)
2022. International Tax and Public Finance 29 (1): pp. 20-52
Abstract: Do policies and institutions matter for pre-tax income inequality? I build an annual panel of 43 countries for the period 1980–2016 to document cross-country facts. I find robust correlations between pre-tax income shares and economic policy—financial development, trade openness, government expenditure, and income taxation—even after controlling for economic development. I further find that proxies of institutional quality—e.g., state development, corruption, or political exclusion—mediate the relationship between top income shares and economic policy, in particular for trade openness and government expenditure. The role of institutions in allowing or limiting rent-seeking can rationalize the results.
Combining Discrimination Diagnostics to Identify Sources of Statistical Discrimination (appendix)
with P. Domínguez and N. Grau
2022. Economics Letters 212, 110294
Abstract: Statistical discrimination is usually flagged by economists as a potential source of treatment disparities. The literature, however, lacks reduced-form tests that provide information about the relative importance of statistical discrimination in explaining aggregate patterns. This article explores whether combining three different diagnostics of aggregate discrimination --those being, unconditional treatment disparities, benchmark tests, and outcome tests-- can provide insights into sources of statistical discrimination. We discuss the difficulties concomitant with this exercise and argue, using an identification result that relies on restrictive (and presumably implausible) assumptions, that the answer is most likely negative.
Trends in US Spatial Inequality: Concentrating Affluence and a Democratization of Poverty (appendix) (replication package) (NBER wp)
with C. Gaubert, P. Kline, and D. Yagan.
2021. AEA Papers and Proceedings 111: pp 520-525
Abstract: We use Bureau of Economic Analysis, census, and Current Population Survey data to study trends in income inequality across US states and counties from 1960–2019. Both states and counties have diverged in terms of per capita pretax incomes since the late 1990s, with transfers serving to dampen this divergence. County incomes have been diverging since the late 1970s. These trends in mean income mask opposing patterns among top- and bottom-income quantiles. Top incomes have diverged markedly across states since the late 1970s. In contrast, bottom-income quantiles and poverty rates have converged across areas in recent decades.
Ambiguity and Long-Run Cooperation in Strategic Games (appendix) (code)
with M. Rojas
2021. Oxford Economic Papers 73 (3): pp 1077-1098
Abstract: We study the effects of ambiguity on long-run cooperation in infinitely repeated strategic games. Using a simple parametric model of ambiguity, we study conditions for sustaining cooperative equilibria in the long-run. We apply our framework to the prisoner’s dilemma and duopoly models. We find that (i) ambiguity may affect the game’s structure eventually making the noncooperative equilibrium ex ante preferred; (ii) higher levels of ambiguity make long-run cooperation less likely since it makes punishment schemes less effective; and (iii) large levels of ambiguity may preclude the possibility of mutually beneficial long-run agreements, even when cooperation is beneficial from an ex ante perspective.
Using Small Businesses for Individual Tax Planning: Evidence from Special Tax Regimes in Chile
with C. Agostini, E. Engel, and A. Repetto
2018. International Tax and Public Finance 25 (6): pp 1449-1489
Abstract: Many countries have special tax regimes (STRs) for small businesses. Even though these regimes may reduce compliance costs, they increase the complexity of the tax system and can be used by high-income individuals to avoid taxes. This paper uses administrative data from Chile to analyze whether the use of STRs is associated with strategic tax planning at the individual level. A descriptive analysis of the data finds three stylized facts that, taken together, are consistent with strategic behavior: STRs are used frequently, they are used mainly by high-income taxpayers, and high-income taxpayers are more likely to hold a portfolio of businesses filing taxes under STRs. We rationalize these facts with a simple model of small business creation and tax planning and test the model’s predictions. We find that following a reform that made a particular STR more restrictive, reported individual incomes from businesses filing under that STR decreased between 10 and 15%, while income reported from alternative sources increased. Overall Taxable Income increased between 4 and 7%. This increase is explained by the more restrictive scenario for avoiding taxes through STRs, consistent with individuals using these regimes for tax planning.
Book Chapters
Cómo diseñar impuestos: Teoría económica y evidencia empírica (in Spanish)
2021. In Impuestos justos para el Chile que viene: Diagnóstico y desafíos tributarios para un nuevo pacto fiscal, edited by J. Atria and C. Otero (book website), Fondo de Cultura Económica
Abstract: Este capítulo se pregunta cómo deben diseñarse los sistemas tributarios para cumplir de la mejor manera posible los objetivos propuestos por el estado. Para ello, se presenta una síntesis de la literatura económica de impuestos óptimos la cual explora cómo son los sistemas tributarios que maximizan los objetivos del estado considerando tanto elementos normativos como los efectos económicos de los impuestos. El foco del capítulo son los impuestos al ingreso, pero también se discute brevemente como esta lógica afecta otros elementos del sistema tributario. Se argumenta que esta literatura concluye que los sistemas tributarios óptimos son usualmente progresivos, con tasas marginales altas y transferencias focalizadas, incluso tras reconocer que los impuestos pueden generar distorsiones. También, la literatura sostiene que ampliar las bases tributarias permite minimizar las distorsiones de la redistribución. El capítulo termina discutiendo qué lecciones de esta literatura son particularmente relevantes para pensar reformas atingentes al caso chileno.